On pre-approval regulations for high-value LCs

With the holy month of Ramadan coming closer, there is a growing need to import essential commodities. In the wake of the previous Ramadan, in January 2025, Bangladesh had imported US$1 billion worth of dates, sugar, wheat, lentils, onions, chickpeas, and raw palm and soybean oil. This year, a conglomerate is getting ready to import items valued at about $550 million in order to ensure a sufficient supply of goods in the market throughout the season. However, since Bangladesh Bank recently issued a directive on large-value Letter of Credit (LC) approvals, it has become more challenging to open bulk LCs in a single tranche.

The central bank's new instruction - announced at its 39th AD Forum - requires Authorised Dealer (AD) banks to inform the central bank at least 24 hours before opening any LC exceeding US$3 million. This pre-notification measure aims to improve oversight of high-value imports, prevent under- or over-invoicing, and strengthen the management of the country's foreign exchange reserves. Conceptually, the initiative is well justified: the central bank needs advance data to ensure prudent reserve planning and macroeconomic stability. However, practical implementation has exposed several operational bottlenecks. Both bankers and importers are struggling with procedural complexities, software limitations, and administrative delays that could unintentionally hinder trade efficiency and supply chain continuity.

OPERATIONAL AND TECHNICAL CONSTRAINTS: Under the current framework, reporting a high-value LC on Bangladesh Bank's web portal requires submission of not only the import contract or proforma invoice but also a valid LC number. Yet, generating an LC number in real-time core banking systems involves completing all accounting procedures-such as commission calculation, charge posting and reconciliation-leaving no scope for provisional or 'dummy' LC entries. While this approach ensures transparency and accurate reporting, it makes the early submission process cumbersome. Several AD branches have reported delays in obtaining pre-approval, causing subsequent delays in the issuance of final LCs and in the shipment of goods.

TRADE AND TIMING CHALLENGES: Importers have expressed particular concern about the rule's impact on bulk commodity imports. Large consignments of food grains, edible oil, sugar and other essential consumer goods are typically imported on a vessel basis. For such imports, it is rarely feasible for a single bank to finance the entire consignment or arrange buyer's credit for the full value. Consequently, multiple banks often collaborate to open several smaller LCs-each under the US$ 3 million threshold-for the same supplier. This 'split LC' practice, though complex, enables timely delivery, mitigates financing constraints, and keeps the supply chain functional. However, the new pre-notification requirement complicates this process and risks delaying approvals, especially when shipments are time-bound. An importer explained that a delay in LC approval could cause vessels to miss scheduled loading slots, leading to higher demurrage, freight costs, and potential shortages in the domestic market. For essential commodities, such disruptions can have far-reaching economic and social implications.

BALANCING REGULATION WITH PRACTICALITY: Bankers comply with the central bank's underlying objectives. A senior bank executive noted that the directive is intended to enhance transparency, curb trade-based money laundering and support reserve management. Yet, the same official acknowledged that the process is not fully synchronised with banks' digital infrastructure-resulting in delays and inefficiencies. This points to the need for a policy framework that ensures regulatory oversight without impeding legitimate trade. A risk-differentiated approach could be the way forward. For instance, large-scale capital machinery or project-specific imports justifiably warrant prior approval due to their significant impact on foreign reserves. However, essential commodities, fuel, and industrial raw materials-typically imported in frequent, high-volume shipments-could be allowed more procedural flexibility.

ROLE OF TECHNOLOGY AND COORDINATION: Modernising the reporting infrastructure could help reconcile regulatory control with operational efficiency. Integrating Bangladesh Bank's web portal (BBOIMS) with banks' core systems, automatised the LC number generation and enabling near real-time data synchronisation would streamline the process considerably. Such integration would allow the central bank to receive timely information on high-value transactions without forcing banks to go through repetitive manual reporting steps. Moreover, automated compliance alerts could replace the need for prior manual approvals, achieving both transparency and speed. Equally important is continuous dialogue among policymakers, bankers and businesses. Periodic consultation forums involving Bangladesh Bank, AD branches, and representative trade bodies can identify practical bottlenecks and refine implementation mechanisms. Clear procedural guidelines, realistic timelines and predictable system workflows are essential for maintaining market confidence and operational efficiency.

FOR A BALANCED POLICY FRAMEWORK: Bangladesh's economy relies heavily on timely imports-especially of essential commodities-to ensure price stability and food security. Any prolonged procedural delay in the LC approval chain could have inflationary consequences and disrupt production across industries dependent on imported raw materials. Hence, a balanced, risk-based framework is essential. The central bank's legitimate concerns over foreign exchange monitoring and market discipline must coexist with the private sector's need for efficient trade facilitation. A flexible mechanism, strict for capital-intensive imports but simplified for essential goods, would reflect both prudence and pragmatism.

The 24-hour pre-approval rule for high-value LCs is a well-intentioned measure aimed at improving oversight of foreign exchange flows and strengthening macroeconomic management. Yet, in its current operational form, the policy presents practical challenges that risk slowing down trade, increasing transaction costs, and complicating the import of essential goods.

A forward-looking solution lies in adopting a risk-differentiated approach, leveraging digital integration between banks and the central bank, and fostering active dialogue with stakeholders. As part of this initiative, BBOIMS could be enhanced to allow ADs to register only the proforma invoice or sales contract at the pre-approval stage, rather than requiring full LC posting. This adjustment would ensure timely reporting and regulatory visibility while minimising operational delays and maintaining trade efficiency. By combining regulatory vigilance with operational flexibility, Bangladesh can achieve the dual objectives of preserving reserve stability and sustaining a vibrant, uninterrupted flow of trade.

Md Saidul Islam CDCS is First Vice President and Head of OBU, The Premier Bank PLC, Gulshan Branch. sayedcdcs@gmail.com