The commercial banks in the country are facing difficulties in settling import payment obligations, with their holding of foreign currency depleting fast amid an ongoing dollar crisis, bankers and businesspeople said.

The foreign currency held by commercial banks plunged by 13.5 per cent in the past four months, making it harder for them to open Letters of Credit for importing essential products.

The interbank foreign exchange market has nearly collapsed, and banks couldn’t meet their own demand, said bankers.

The gross foreign currency balance with banks fell to $4.5 billion in October, down from $5.2 billion at the end of June this year, according to Bangladesh Bank data.

The October balance was 8.14 per cent lower than the September balance of $4.9 billion, with a handful of banks holding the majority of the balance.

The commercial banks held $6.00 billion at the end of July 2021, but the balance started falling since then, the data showed.

Bangladesh Bank’s decision not to sell dollars from its reserves to private commercial banks aggravated the crisis.

As a result, at least 21 banks with negative balances in foreign currency holdings are currently struggling to pay their due import payments against their issued LC, BB officials said.

These banks fell into a dollar deficit after paying huge amounts against LCs.

Most of the banks delayed paying their import payment obligations.

The crisis prompted every other bank to refuse to open LCs, as they didn’t have enough dollars to meet the high demand in the market.

Islami Bank usually receives around 30 per cent of the total remittance inflow into the country.

Mohammed Monirul Moula, managing director and chief executive of Islami Bank Bangladesh Limited, said that they also had shortages of dollars to some extent.

After the Covid-19 pandemic, the gap between import and export increased, creating an imbalance in trade, he said.

‘We hoped that the situation would go away as the government and the central bank took various steps, including reducing unnecessary imports, keeping exports stable, and increasing remittance inflow to ease the dollar crisis,’ he said.

Emranul Huq, managing director and chief executive officer of Dhaka Bank Limited, said that Dhaka Bank also had a shortfall in dollar balance.

As a result, the bank reduced the import of unnecessary products and rationed the opening of LCs, he explained.

Many banks, which don’t have enough dollars, struggle to issue new LCs, he said.

The pressure on the dollar may continue until December and may improve in January and February next year, he said.

Bangladesh Knitwear Manufacturers and Exporters Association executive president Mohammad Hatem said that banks were reluctant to open LCs because of the ongoing dollar crisis.

Banks are under pressure to pay due payments of back-to-back LCs as the central bank, ignoring the current unusual situation, warned banks of cancelling authorised dealer licences if they failed to pay LC payments on time.

Buyers are reluctant to receive export orders, and some of them are delaying export payments, then why should we pay LCs’ payments on time, he asked.

Furthermore, the difference in dollar rates between remittance and export bill encashment added salt to the wounds, as we earned Tk 100 per dollar while paying Tk 105-7 per dollar to import our raw materials, he explained.

Mohammad Ali Khokon, president, Bangladesh Textile Mills Association, said that production in the textile industry had reduced by 40 to 50 per cent due to the gas and energy crisis induced by the foreign exchange crisis.

He said that if production was discontinued, cash flow continued to be negative, and workers might face layoffs.

The local textile industry couldn’t open LCs due to the dollar shortage in the banking sector.

‘The problem came about due to a global phenomenon. We expect to overcome it soon,’ he added.

State-run banks prefer to open LCs for the government, in particular, to import essential products, while some banks, which have dollar surpluses, are opening LCs for large-scale businesses to bring in necessary products.

However, the large companies couldn’t import as much as they needed, and they also had to choose which products to import.

Even some banks had to refuse to open LCs for importing essential commodities, including food.

Due to the delay in dollar payments to foreign banks, the country’s banking sector has also been facing an image crisis, and bankers fear that foreign banks may not grant Bangladesh LCs due to the delay and nonpayment against LCs.

Therefore, small and medium-sized businesses are the ones facing the heat the most.

The foreign currency reserve in Bangladesh dropped to $34.26 billion on Thursday as the Bangladesh Bank increased dollar sales to tackle the greenback crisis on the market.

According to a suggestion of the International Monetary Fund, if the $8 billion used as an export development fund is excluded from the foreign exchange reserve, the reserve stands at $26.3 billion, the lowest in seven years.

The dollar crisis worsened amid high import payments, low remittances and export earnings.

The country’s import payments increased to $19.34 billion in July-September from $17.32 billion in the same months of the past year.

The trade deficit widened to $7.54 billion in the July-September period compared with $6.77 billion in the same period of the past financial year.

Remittances and export earnings are prime tools for the bankers to meet the demand for dollars, but both are falling, the BB officials said.

The country’s inward remittance dropped to $1.52 billion in October, which was the lowest inflow of remittance in eight months.

The exchange rate rose sharply to Tk 107 from Tk 84.8 against the US dollar within a year. The BB approved the floating rate of dollars on September 14.

The worsening gas crisis left many residents in the capital suffering and hit the country’s manufacturing industries hard as their production fell significantly.

Manufacturers feared that the country’s export earnings would drop significantly due to the gas crisis.

They said that the crisis multiplied their sufferings amid high prices of essentials and frequent power cuts.

The monthly inflation rate rose to 9.1 per cent in September and 8.91 per cent in October.

Habibur Rahman, the chief economist of Bangladesh Bank, told New Age that imports of the country reduced in recent months amid efforts of the government and BB.

‘We are trying to increase the remittance inflow and minimise unnecessary imports to stabilise the foreign currency market soon,’ he said.