In another positive development for the country’s economy, the opening of Letters of Credit (LCs) for imports has increased, signalling a potential upturn following the rise in remittances. However, there has been little improvement in the flow of credit to the private sector, with lending growth remaining sluggish.
According to the latest report from Bangladesh Bank, the opening of LCs in the first quarter of the 2025-26 fiscal year (July-September) has increased by 10.82% compared to the same period last year. In the previous fiscal year (2024-25), the growth was just 0.18%.
Notably, there has been a sharp rise in LCs opened for the import of food products, capital machinery, and raw materials for industries. While LCs are on the rise, the private sector’s credit growth remains slow. As of August, the private sector loan growth has fallen to 6.35%, down from 9.86% in August of the previous year.
Industry analysts have expressed concerns, pointing out that although more LCs are being opened, there has been no corresponding increase in commercial activity. This raises the question of who is opening these additional LCs and for what purposes.
Bangladesh Bank’s data reveals that in the first quarter of the current fiscal year, LCs for consumer goods imports amounted to $1.59 billion, marking an 18.77% increase compared to the previous year. Similarly, LCs for capital machinery grew by 22.87%, reaching $471.6 million. There was also a growth in LCs for the import of intermediate goods, petroleum, and raw materials.
In the previous fiscal year, the total import bill amounted to $68.35 billion, a 2.44% increase compared to the previous year.
Economists suggest that the recent political changes have led to instability in the business environment. Many businesspeople who are allied with the ruling Awami League have been facing legal challenges due to various irregularities, which has slowed down their operations. Additionally, the changing of boards in at least 15 banks has resulted in reduced loan disbursement. The loan activities of five banks, which are in the process of mergers, have nearly come to a halt.
As a result, both new investments and industrial production have slowed down, which has directly impacted the private sector loan flow. In August, this growth dropped to 6.35%, down from 6.52% in July.
Officials from Bangladesh Bank have pointed out that while imports were sluggish last year, there has been some recovery this year. Factors such as the import of capital machinery for small-scale additions, seasonal food product imports, and government purchases of rice and wheat have contributed to the rise in LCs.