LC cancellations rise by 25pc in H1

February 21, 2015

Cancellations of the import-related letter of credit increased by 24.94 per cent in the first half of the current fiscal year because of disagreement between importers and exporters and dull business situation in the country amid political uncertainty and unrest in the period, Bangladesh Bank officials said. The BB data released recently showed that LC cancellations rose by 24.94 per cent in July-December of the FY 2014-15 compared with that of 16.90 per cent growth in the corresponding period of the FY 2013-14.
LCs for import of items worth $890.45 million were cancelled in the first six months of the FY15 while the figure was $728.71 million in the same period of the FY14. LCs for import of items worth $623.34 million were cancelled in the first half of the FY13.
A BB official told New Age on Thursday that earnings of the scheduled banks from LCs would shrink due mainly to the cancellations of import orders.
‘The banks usually get a healthy service charge against the LCs if the import orders are not cancelled by importers and exporters. So, banks’ profit from the area will decline due to the cancellations in the first half of this fiscal year,’ he said.
LC cancellations occur due mainly to faulty agreements and loopholes in conditions agreed upon by the buyers and the sellers, the official said.
He said a number of LCs against various items was also cancelled in the first six months of the FY15 because of the political uncertainty.
Some businesspeople cancelled their import orders amid dull business situation in the country due to the political uncertainty and unrest, he said.
The BB data showed that cancellations of LCs for industrial raw materials increased to $464.15 million in the first six months of the FY15 from $182.79 million in the corresponding period of the FY14.
Cancellations of the LCs for the capital machinery increased to $52.66 million in the first six months of the FY15 from $26.66 million during the same period a financial year ago, that of the LCs for textile fabrics and accessories for garment sector to $184.40 million from $42.98 million, that of the LCs for raw cotton to $40.41 million from $24.29 million, and that of the LCs for synthetic and mixed yarn to $13.40 million from $3.71 million, the BB data showed.
The rate of LC cancellations will increase in the coming months if the businesspeople do not get an investment-friendly business situation, said another BB official.
He said that LC cancellations had significantly decreased in the FY13 than that of the FY12 due to a favourable business situation in the country.
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.
The BB data, however, showed that LC cancellations had jumped to $1.50 billion in the FY14 due to political violence in the period.

-With New Age input

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