During Ramadan, to keep the commodities price at a reasonable level and keep the supply line running smoothly., Bangladesh Bank has asked banks to get a minimum cash advance from importers when they open letters of credit (LCs) for essential goods.
The Bangladesh Bank recently released a notice stating that the advance payment, also called the cash LC margin, should be kept at the minimum level depending on the relationship between the bank and the client.
The order comes a week after the commerce ministry suggested that the central bank set up a crisis management cell to make it easier to open letters of credit (LCs) for essential goods imported before Ramadan when demand for many basic items goes up.
Banks will give the import facility with a minimum LC margin to people who want to bring in edible oil, gram, lentil, onion, sugar, peas, spices, and dates.
During Ramadan, people usually buy more of the things they need, which drives up the prices of those things.
Edible oil and sugar prices have already gone up in Bangladesh because of higher import costs for the raw materials used to make them, higher transportation and fuel costs, and a lack of energy, which is mainly caused by the war between Russia and Ukraine.
Businesses, like importers and processors of commodities, have complained that they can’t open LCs to buy essential goods from the international market because banks are hesitant to help them to do so because of the shortage of US dollars.
A paper from the commerce ministry says that Bangladesh will need grains, dates, lentils, edible crude oil, sugar, and wheat worth nearly $2.5 billion in the four months before the fasting month starts in March. Among these, $2.1 billion is needed for crude soybean oil and seeds, refined, bleached, deodorized palm oil, raw sugar, and wheat.
Most of the time, the central bank does not set a margin on the import of goods. It mainly depends on the relationship between the bank and the client. Even Banks can decide to impose no margins. But in July, BB asked banks to take up to 100% of import payments in advance from businesses to keep the foreign exchange reserves stable while opening LCs for luxury and non-essential items like fruits. It means that importers would have to keep a 100% margin when opening LCs for dates, one of the most popular things to buy during the month of fasting.
Emranul Huq, MD of Dhaka Bank, welcomed this initiative and said, it would help keep the commodity market stable during Ramadan. However, he mentioned that banks must immediately clear import bills for food items because, most of the time, opening LCs for things with no margins only helps businesses or banks a little.
He also suggested that the central bank should give banks the deferral support facility to pay off the LCs even though banks still don’t have enough US dollars.
Bangladesh’s dollar shortage has gotten worse because of a sharp rise in import bills compared to lower-than-expected money from remittances and, to some extent, exports. These are the two cheapest ways for Bangladesh to get foreign currency.
Moreover, due to high import costs, the reserves went down from $39.60 billion in July to $33.92 billion on December 7.
So far, the central bank has put about $6.50 billion worth of US dollars on the market to help banks pay their import bills.
Taslim Shahriar, senior assistant general manager at Meghna Group of Industries, says that the central bank should provide dollar support to banks to settle import bills for food items centering Ramadan.