Bangladesh Textile Mills Struggle With Banks’ Tk420 Crore LC Payment Delays
Bangladesh’s textile sector is grappling with a financial crisis as banks delay payments amounting to Tk420 crore against letters of credit (LC), even after more than six months of maturity.
This issue has placed 52 textile mills in a precarious situation, prompting urgent appeals for intervention from the central bank. The Bangladesh Textile Mills Association (BTMA) addressed a letter to the Bangladesh Bank governor on Thursday (13 June), signed by BTMA President Mohammad Ali Khokon, highlighting instances where banks have failed to release payments six months past the LC maturity date. The letter stated, “Despite supplying goods on back-to-back LCs, some banks are not settling bills promptly.”
According to BTMA sources, after a meeting with the Bangladesh Bank governor on 11 June, a list of affected mills was submitted, revealing that banks have yet to clear nearly $36 million in LCs for about 52 mills.
NZ Tex Group, one of the largest textile mills in the country, encountered a $2 million payment delay after delivering goods.
Saleudh Zaman Khan, managing director of NZ Tex Group, expressed frustration to The Business Standard, saying, “Some of our LCs against bills are already overdue with banks. LCs are meant to mitigate risks, yet banks charge commissions without ensuring timely payments.”
He further questioned the rationale, stating, “If banks cannot disburse payments on time, why issue LCs and charge commissions? I can manage risks directly by supplying goods.”
When an exporter receives an LC against a foreign order, they can purchase local goods on credit using a back-to-back LC.
Local suppliers should receive payment within 90 to 120 days of accepting the back-to-back LC. If this timeframe is exceeded, it is considered overdue. Currently, some maturity dates have been delayed by one month to over a year.
Stakeholders fear potential shutdowns if the crisis persists. A textile mill entrepreneur, speaking anonymously to TBS, noted, “Production is severely affected due to a twofold increase in gas prices. Combined with unpaid bank payments, it’s increasingly difficult to pay employees’ salaries and bonuses before Eid.”
Syed Mahbubur Rahman, managing director of Mutual Trust Bank Limited, acknowledged longstanding issues, stating, “This problem persists because textile millers face delays in receiving payments for supplied products.”
“While bills from foreign buyers for imported raw materials are promptly settled, local textile mills often encounter delays in LC payments from banks and garment owners,” he added.
He highlighted the impact on local textile millers, stating, “Due to payment delays, their loans sometimes become classified.”
