Unusual rise in cancellation of LCs

FE Team | Published: March 20, 2009 00:00:00 | Updated: February 01, 2018 00:00:00

Siddique Islam
Cancellation of letters of credit (LCs) for import has risen unusually in the last several months, according to officials.
The cumulative value of LCs cancelled during July-January period of current fiscal (FY09) stood to $619.37 million. In July of FY09 LCs worth $119.00 million were cancelled, according to the central bank statistics.
Although LCs are cancelled on regular basis because of technical reasons like failure to maintain shipment time, but during the last seven months ending January '09, the cancellation rate has escalated baffling the bankers, market operators said.
The central bank is now examining the country's overall import situation including cancellation of LCs against the backdrop of falling prices of commodities in the global market, they added.
"We're scrutinising the overall situation of LCs for import, the rate of cancellation of LCs and position of outstanding LCs," a BB senior official told the FE Wednesday.
He also said the opening of LCs for import registered a rising trend from January this year and was continuing.
The LCs for edible oil (crude) worth US$36.02 million were cancelled during the period under review compared to $26.69 million of the July- November period of the same fiscal.
The LCs for wheat worth US$49.32 million were cancelled during July-January period of FY09. The figure was $ 38.94 million in July- November period due to fall in prices of the produce in the international market.
The LCs for scrap vessels worth $36.35 million were cancelled during the period under review. The cancellation of LCs for scrap vessels was worth $11.00 million in July-November period of FY09.
The LCs for sugar worth $36.58 million, milk powder worth $8.02 million, pulses worth $8.51 million, rice worth $59.81 million and onion worth $5.83 were cancelled during the period under review.
"Some feasible projects have turned out to be unviable ones in the recent months due mainly to the ongoing global economic recession that could have pushed the number of LC cancellations," a senior official of a foreign commercial bank told the FE.
But importers said LCs for import are cancelled in some cases when the suppliers (exporters) either fail to supply the commodities on time or seek higher prices than rates stipulated in the LCs.