Import demand slumps, LC activity drops
The Letter of credit (LC) settlements declined by 26.6 per cent in March, signalling a slowdown in business activity and investment across the economy.
According to a senior official at Bangladesh Bank, banks settled import payments worth $4.66 billion during the month, down sharply from $6.35 billion in the same period last year—indicating a notable contraction in import demand.
LC settlement represents the final stage of international trade transactions, where the importer’s bank releases payment to the exporter after verifying that all required documents comply with contractual terms.
At the same time, the exchange rate in the banking channel has eased slightly. Several private banks traded the US dollar between Tk122.90 and Tk122.98 yesterday, compared with around Tk123.10 a week earlier.
Bankers and economists attribute the fall in LC settlements to broader economic weakness. Sluggish business conditions have reduced demand for imports, particularly capital machinery, while overall investment activity remains subdued.
Uncertainty linked to global geopolitical tensions—especially conflicts during March—also weighed on trade decisions. Many importers refrained from opening new LCs amid concerns over potential shipment disruptions and volatility in the dollar market, adopting a cautious, wait-and-see approach.
Mohammad Ali, managing director of Pubali Bank Limited, said weaker export performance has been a key factor behind the decline. Lower export volumes have reduced the need for back-to-back LCs, which are typically used to finance import inputs for export-oriented industries, thereby pulling down overall settlements.
He noted that most LCs settled in March had been opened earlier, in January and February, when export orders had already begun to slow.
Echoing similar concerns, Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said March was marked by considerable uncertainty. Despite expectations of a post-election recovery, investment failed to gain momentum due to lingering concerns over commodity markets, exchange rate movements and the reliability of global shipping routes.
He added that disruptions in key international trade corridors further discouraged import activity, even when routes remained technically open.
Data from Bangladesh Bank shows that LC openings also fell by more than 10 per cent in March. New LCs worth $5.77 billion were opened, compared with $6.46 billion a year earlier, reflecting weaker appetite for fresh imports.
A deputy managing director of a commercial bank said the trend points to subdued private sector activity. Most new LCs are currently being opened by public sector entities, while private businesses remain cautious. Private sector credit growth has also slowed, reaching 6.03 per cent in February.
Despite the slowdown in trade, dollar liquidity in the banking system remains comfortable. Bangladesh Bank recently purchased $180 million through three auctions over the past week, indicating a relatively stable foreign exchange position.
A senior official at a private bank said that while some payment pressures persist, reduced import demand and steady inflows of foreign currency have helped ease the exchange rate slightly.
