Bangladesh’s Central Bank Cracks Down on Splitting LCs

Since Bangladesh Bank, the country’s central bank, established its Foreign Exchange Policy Department (FEPD) as a dedicated department for the overall monitoring of import letter of credit openings, notable awareness among the banking and business sectors has increased. Prior to formation of the FEPD, the price verification process for banks before opening LCs was inconsistent. As Authorized Dealer branches gained experience collaborating with Bangladesh Bank, they established standards for verifying prices of specific imported goods, including but not limited to coal, soft commodities, and furnace oil. This monitoring has helped achieve a degree of consistency in the standards used for price verification.

Additionally, Bangladesh Bank has instructed commercial banks to report LC amounts of USD 3 million or more to its Online Import Monitoring System (OIMS) within a 24-hour holding period. The unwritten rule is that if Bangladesh Bank does not raise any concerns within 24 hours, commercial banks are free to proceed with opening the LC.

But according to Bangladesh Bank, some regulated financial institutions have been dividing the total value of coal import deals into several small-value LCs in order to avoid the mandatory filing. Banks have reportedly split LCs even when transactions involve the same buyer, seller, product type, and delivery schedule. “There have been cases where importers open multiple LCs for identical products at different prices”, one unnamed central bank representative told Deshkal News.