LC cancellations rise to $2.53b in FY15; political uncertainty, unrest, dull economy to blame

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AKM Zamir Uddin

Cancellations of the import-related letters of credit increased by 67.95 per cent in last financial year because of disagreements between importers and exporters and dull business situation in the country due to political uncertainty and unrest, Bangladesh Bank officials said.

According to the latest BB data, cancellations of the LCs increased to $2.53 billion in the FY 2014-15 from $1.50 billion in the FY 2013-14. The import-related LCs worth $1.35 billion were cancelled in the FY13.

A BB official told New Age on Thursday that scheduled banks’ earnings from LCs shrank in the FY15 due mainly to cancellations of import orders.

‘The banks usually get a healthy amount of service charges against the LCs if the import orders are not cancelled by importers and exporters. So, the banks’ profits from the area declined due to the cancellations in the FY15,’ the official said.

LC cancellations occur due mainly to faulty agreements and loopholes in conditions agreed upon by the buyers and the sellers, he said.

The BB data showed the country’s import payments stood at $40.68 billion in the FY15 up from $36.57 billion in the FY14.

So, the cancellations of LCs worth $2.53 billion were big in terms of the country’s overall import volume, the official said.

He said a number of LCs against various items was cancelled in the recently concluded financial year because of the political unrest and uncertainty.

The BB data showed that cancellations of the LCs for petroleum and petroleum products increased to $249.41 million in the FY15 from $124.55 million in the FY14, that of the LCs for industrial raw materials to $1.16 billion from $470.49 million, that of the LCs for capital machinery to $189.54 million from $62.66 million, that of the LCs for machinery of miscellaneous industries to $234.68 million from $104.71 million, that of the LCs for medical, surgical and dental equipments to $10.26 million from $3.71 million, that of the LCs for fresh fruits to $16 million from $7.33 million, that of the LCs for onions to $15.42 million from $13.36 million, that of the LCs for coal to $32.09 million from $2.90 million, that of the LCs for chemical and chemicals products to $308.66 million form $132.95 million and that of the LCs for motor vehicles to $84.19 million from $7.19 million.

The rate of LC cancellations will increase in the coming months if the businesspeople do not get an investment-friendly situation, said another BB official.

He said that LC cancellations had remarkably decreased in the FY13 compared with that in the FY12 due to a comparatively favourable business situation in the country. But, the cancellation rate increased significantly in the last two financial years.

The BB data showed that LC cancellations had declined by 46.86 per cent in the FY13 compared with that of an increase of 35.95 per cent in the FY12.

LCs for import of items worth $1.35 billion were cancelled in the FY13 against $2.55 billion in the FY12. The figure was $1.88 billion in the FY11.

Source: New Age