Banks asked to levy minimum LC margin on importers

The central bank has asked banks to take a minimum cash advance from importers while opening letters of credit (LCs) for a number of essential commodities in order to keep their prices at a tolerable level during Ramadan and ensure smooth supply.

The advance payment, also known as the cash LC margin, should be kept at the minimum level depending on the bank-client relationship, said the Bangladesh Bank in a notice today.

The instruction comes more than three months before the fasting month begins. 

The demand for edible oil, gram, lentil, onion, spices and dates usually goes up during Ramadan. As a result, the prices of the items increase. 

The prices of key items such as edible oil and sugar have already surged in Bangladesh for the higher import costs of the raw materials needed to produce the items, the escalated transport and fuel costs, and the energy shortage, driven mostly by the Russia-Ukraine war.  

The central bank does not set any margin on the import of commodities, and it is usually determined based on the bank-client relationship. Banks can even decide to impose no margins.

But in July, the BB asked banks to take up to 100 per cent of import payments in advances from businesses while opening LCs for luxury and non-essential items, in an effort to keep the foreign exchange reserves stable.

The reserves fell from $39.60 billion in July to $33.92 billion on December 7.