Banks told to keep LC margin low

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The Bangladesh Bank (BB) yesterday asked commercial banks to keep the LC (letter of credit) margin at a tolerable level for the essential imports as its recent study reveals that some banks require up to 100 percent cash deposit.

The central bank governor, Salehuddin Ahmed, at a meeting with the top brass of the banks also asked for policies designed to encourage small traders to engage in import with a view to ending the monopoly of a few giant importers.

During the discussion, the bankers voiced discontent about ‘indiscriminate’ raids by the joint forces on different branches. They said the forces demand transactions and accounts statements of particular clients, but on many occasions they could not produce warrants or necessary legal documents.

In response, Salehuddin said the government high-ups have assured the central bank that such raids would be stopped and the army-led crack forces would take the BB’s assistance in collecting a person’s bank statement.

The bank officials however welcomed the anti-graft crackdown and observed that the ongoing drives would bring positive changes in economy.

Coming out of the meeting, the BB governor told reporters, “In the past, a handful would eat the cake while now everyone–the poor and the honest–will have a slice of the cake.”

Replying to a query, he said the individuals, whose bank accounts have been frozen recently, would be allowed to withdraw a maximum of Tk 50,000 a month. The National Board of Revenue (NBR) recently froze accounts of a number of high profile people on charges of corruption and tax evasion.

On delay in release of products, Salehuddin said the banks have been asked to co-operate with the importers in securing customs clearance easily and quickly and the central bank too will help to that end.

He said, “We have directed the banks to charge lesser margin against LCs by small importers. If necessary, they should take some risks.”

The BB arranged the meeting to review the current import situation against the backdrop of spiralling prices of necessities.

Its officials placed a report on the recent trends in import of consumer products and fertiliser.

According to the report, LC opening for the consumer products including rice, lentil, wheat and edible oil has been increased by 21 percent in the January-March period compared to the corresponding period last year. However, the rate of LC settlement of those items has come down by 21 percent in the same period.

In case of fertiliser import, LC opening rate has risen by 4 percent while the rate of LC settlement has shot up by 56 percent.

The BB report also outlined 24 commercial banks’ trends in setting LC margins against imported products in January-February. Keeping up to 50 percent LC margin is a normal practice, but in some cases a few banks took 100 percent cash margin in advance.

It, however, said the banks set margin independently on the basis of their relations with the clients. They also take into account the type of the product and credibility of the importer. The fact remains that increase in margins means rising import cost, it said adding that such practice may discourage the importers.

Bankers said higher margin against LC is not the sole reason for price hike of essentials. They said prices of some products are high on the international market while the recent wholesale drive against hoarding is another reason.

About the BB proposal for measures to encourage small importers, the banks said it is not possible to bring the small traders in import business overnight, meeting sources said.

“If we start the process now, it will take another two to three years for the small importers to be capable of importing,” one of the bank representatives was quoted as saying.

About the anti-hoarding drives, the central bank governor told the meeting that the government has assured him of launching co-ordinated drives and only the dishonest businessmen will be the subject of those.

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