Bangladesh Bank has issued show-cause notices to 21 scheduled banks to explain why they failed to settle their foreign bills in due time against letters of credit in line with the central bank’s directives.
A BB official told New Age on Thursday that the central bank had served the notices on the banks on April 7, asking them to reply to the notices by April 17, 2014.
The BB earlier issued a circular saying that it would impose financial penalty against the banks which would fail to make payments to foreign parties against LCs in time, he said.
The country’s business image is being tarnished due to the large overdue position in the foreign bill as it is reported globally when a bank fails to pay against an LC on maturity, the official said.
The BB had earlier asked the banks several times to settle their overdue foreign and local bill against LCs, but the banks neglected the central bank’s directives, he said.
The 21 banks which got the BB’s show-cause notices are: Al-Arafah Islami Bank, Agrani_Bank, Bank Asia, BASIC Bank, Bangladesh Krishi Bank, Dhaka Bank, Dutch-Bangla Bank, IFIC Bank,  Islami Bank Bangladesh, Janata Bank, Jamuna Bank, National Bank of Pakistan, National Bank, ONE Bank, Premier Bank, Prime Bank, Pubali Bank, Rupali Bank, shahjalal Bank, Sonali Bank and Standard Bank.
Due to the overdue acceptance bills in foreign LCs, the country is now bearing extra cost in LC confirmation charges.
The LC confirmation charge is imposed when an exporter’s (foreign party) bank wants security in receiving payments under the LC.
Accordingly, an importer’s (local party) bank approaches international banks such as HSBC, Standard Chartered or Citibank NA, to provide guarantee to the exporter’s bank about the payments.
And, these banks impose a charge, which is called LC or ad confirmation fee. This is also called a ‘risk fee’ taken by the confirming bank.
The LC confirmation charge depends on some factors, mainly the country risk and the reputation and strength of the issuing bank. It is also called commitment fee and it varies from bank to bank.
Presently, banks charge 1.5 per cent to 2 per cent of LC value as confirmation fee, meaning a local importer has to pay $2 million to another bank as LC confirmation fee against an import of $100 million worth of goods.
‘It should be 0.5 per cent of LC value, especially after Bangladesh coming out of the grey list of Financial Action Task Force’, the BB official said.
The international credit rating agencies like Standard and Poor’s, Moody’s is considering the banking performance about the capacity of settling the foreign bills when they conduct the sovereign rating for any country.
So, the country’s overdue position in foreign bill will put an adverse impact on its upcoming sovereign rating.