September 13 2022: Most commercial banks are avoiding opening letter of credit (LC) under EDF, UPAS and deferred-payment systems for dollar scarcity, which spinners fear may lead to production suspension of basic apparel raw material.
Bangladesh Textile Mills Association (BTMA) on Sunday revealed such a situation with domestic spinning mills — a vital backward linkage to the country’s main export industry, readymade garments.
The textile millers’ association said local spinners might continue production activities over next three months only with the existing raw materials they have in stock.
The BTMA in a letter, signed by its president Mohammad Ali Khokon, to the Bangladesh Bank on the day said they could not import the requisite raw materials like cotton, polyester staple fibre (PSF) and viscose staple fibre (VSF) to feed the readymade garment (RMG) exporters though they (textile millers) already received orders.
Declining stocks of raw materials amid commercial banks’ unwillingness to open LCs might severely hamper production and exports of textile and apparel items, Khokon said in the letter.
Textile mills need to have raw material stocks for at least 4-5 months for uninterrupted production and export activities, he pointed out, explaining that it also takes three to four months to get imported raw materials.
So, mills have to import raw materials like cotton, PSF and VSF on a regular basis, the BTMA leader informed the Bangladesh Bank, adding: “As per information we have, mills might run their production for next three months with their existing raw-material stocks.”
The association feared that operations of many spinning mills might come to a grinding halt if commercial banks don’t open LC for raw material imports, leading to yarn unavailability.
Production in the value chain of textile mills — weaving, knitting, dyeing, printing, and finishing — would be affected in absence of yarn supply from spinning mills, the letter read.
The production disruption would not only deepen the existing dollar crisis but also affect export earnings, the association forewarns and also fears unemployment of many workers.
The BTMA requested the central bank to take necessary measures and instruct the commercial banks accordingly as regards the opening of LC under Export Development Fund (EDF), UPAS (Usance Payable at Sight) and deferred systems.
Under UPAS letter of credit, the exporter will get the payment at sight if the documents are credit-compliant. The importer will be charged interest, acceptance commission and other charges as per the terms of LC for using this letter of credit, according to exporters.
