The letter of credit refuses to pay, so beware of the risk of foreign exchange collection

After energy, the crisis of opening letters of credit is seriously threatening enterprises in Bangladesh. According to data from the Central Bank of Bangladesh, from July to December 2022, the opening of letters of credit decreased by 14% year-on-year, and the settlement volume decreased by 9%.

According to Bangladesh's "Daily Star" a few days ago, enterprises were forced to raise the prices of goods and services in the face of the government's increase in the prices of oil, natural gas and electricity. The difficulty in opening a letter of credit caused by the shortage of dollars has added fuel to the fire.

As a matter of fact, as early as November last year, there were incidents in which individual issuing banks delayed payment or even refused to pay for the goods under import letters of credit. It is reported that a foreign trade friend posted on the forum for help: Do 100%LC Bangladesh Bank collude with customers to release goods without paying. How to solve it?

Then! The issuing bank actually gave the documents directly to the consignee, and the consignee went to pick up the goods without paying!

According to the relevant regulations on foreign exchange management of Bangladesh Central Bank, except in special circumstances, the external payment of import and export must generally be made by bank letter of credit. Domestic exporters should pay close attention to Bangladesh credit risk when trading with Bangladeshi buyers.

According to data from the Central Bank of Bangladesh, from July to December 2022, the opening of letters of credit decreased by 14% year-on-year, and the settlement volume decreased by 9%. Among them, the amount of letters of credit for industrial raw materials decreased by 27% to 12 billion US dollars. Some enterprises said that at present, the central bank has taken measures to prevent the import of non-essential goods, which has undermined the continuity of business. If the import of industrial raw materials and machinery and equipment cannot be guaranteed, production will be greatly affected and the next step will be forced to lay off employees. This also laid the groundwork for some enterprises to refuse to pay by letter of credit.

In addition, Dhaka Tribune reported that Finance Minister kamal told Parliament that the total number of loan defaulters in Bangladesh was 786,000, of which the top 20 defaulters owed 165.88 billion taka to the lenders, and announced the list and amount of defaulters. Experts said that the IMF believes that Bangladesh did not follow international standards when classifying non-performing loans. If it does, non-performing loans will double. It is suggested that the government take legal action against defaulting companies, set up a special working group, and the central bank will formulate guidelines to force defaulting companies to sell collateral.

A few days ago, the Economic and Commercial Office of the Embassy of People's Republic of China (PRC) in Bangladesh issued a security risk warning: Recently, many enterprises and trade organizations reported to our office that there were trade disputes with Bangladesh, mostly involving the refusal of letters of credit. Remind domestic enterprises to focus on payment methods and dispute settlement clauses when signing contracts, buy trade insurance, and settle disputes in time according to the contract to avoid losses.