LC settlements, openings edge up in first half of FY25

Staff Reporter :

The opening and settlement of letters of credit (LCs) in Bangladesh registered a narrow growth in first seven months (July-January) of the current financial year of 2024-25 as import orders increased by 2.63 percent along with LC settlements surged by 2.08 percent amid the high inflation, reduced demand for materials in the private sector and political unrest.

According to latest Bangladesh Bank data, import LCs worth $41.02 billion were opened during July-January period of FY25 from $39.97 billion compared to the same months of the previous fiscal year.

Correspondingly, in first seven months of FY25, import LC payments amounted to $40.25 billion, compared to $39.43 billion of the same period a year ago.

Over the past two years, the openings of import LCs have consistently decreased due to the shortage of forex reserve and restrictions on the purchase of non-essential items from external sources. As a result, LC payments have also declined in the same trend.

Sector-wise import LC openings data shows that in the first seven months of the current fiscal year (July-January), the biggest decline was in capital machinery imports, which dropped by 34 percent.

During the period, LCs worth only $1 billion was opened for capital machinery. The second-largest decline was in petroleum imports, where LC openings fell by 9.73 percent. Apart from industrial raw materials and consumer goods, imports of all other categories declined compared to the previous fiscal year.

Likewise, sector-wise import LC payments analysis based on data from the central bank reflects that the largest decline, 27 percent, occurred in payments for capital machinery imports.

The second-largest decrease, 13 percent, was observed in payments for intermediate goods imports.

Earlier, in first half (H1) of FY25, the opening of fresh LCs, generally known as import orders, increased by 4.18 per cent to $34.89 billion in the first six months of FY25 from $33.49 billion in the same period of FY24.

Actual imports in terms of LC settlements rose by 2.65 per cent to $34.32 billion during July-December of FY25 from $33.44 billion in the same period of the previous fiscal year, according to the central bank’s statistics.

In January this year, both the openings and settlements of import letters of credit (LCs) decreased compared to the same month of the previous year where 5.4 percent year-on-year decrease in import LCs opened in last month, totaling $6.13 billion and import LC settlements totaled $5.93 billion, down slightly from approximately $6 billion in the same period a year ago.

Moreover, in the first two months of FY25, opening of letters of credit (LCs) for imports dropped significantly by 13 percent, primarily due to countrywide unrest.

Meanwhile, in last fiscal of FY24 LC opening increased marginally to $68.69 billion from $68.24 billion.

However, settlement was recorded a significant downturn in FY24 to $66.0 billion from $72.91 billion in FY23.