The recent scams in the banking sector and the ongoing political unrest have started taking a toll on the businesses that are already coping with a rise in cost, businesspeople and bankers said.

Now an importer has to pay up to 4 percent of his import value as the confirmation fees of letters of credit (LC), which was 2-3 percent a few months ago.

According to bankers and businesspeople, the LC confirmation charge was 0.75-1 percent a year ago.

Exporters also count losses and lose competitiveness as they cannot ship their goods in time due to shutdown and road-blockade programmes.

Many exporters have to count extra charges as their goods-laden trucks remain stranded at ports.

“The LC confirmation charge has increased up to 4 percent in recent days. We used to pay 0.75-1 percent a year ago,” said Mostafa Kamal, chairman and managing director of Meghna Group of Industries that has an annual turnover of around Tk 13,000 crore.

Meghna Group imports commodities, such as sugar, edible oil and wheat, in bulk.

MA Jabbar, managing director of DBL, which exports garments worth more than $250 million a year, also said the LC confirmation fee has gone up recently.

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 renowned 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.

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 that varies from bank to bank.

According to bankers, the recent scams in the banking sector, particularly those related to Hall-Mark and Destiny, have raised question about the banking industry's capacity. The ongoing political unrests may also dent the country ratings.

Helal Ahmed Chowdhury, managing director of Pubali Bank, said the LC confirmation fee has increased by 1 percentage point to up to 4 percent in recent days. But he said the hike was not for all cases.

“Foreign banks (sellers' banks) have become cautious, especially after the Hall-Mark and some other scams,” said MA Yousuf Khan, deputy managing director of Mercantile Bank.

HSBC Bangladesh said there is no fixed market rate for LC confirmation as it depends on the confirming bank's appetite/limit for the respective bank counterparty.

In an email reply, the bank said it has not increased its rates in general.

“Country risk rating does remain a factor in many international transactions,” said HSBC.

It, however, said Bangladesh has a stable country rating from renowned ratings agencies.

News: The Daily Star/Bangladesh/13th-Dec-12