RMG backward linkages in trouble as banks delay local LC payments

Backward linkages such as textiles, yarn, accessories and packaging manufacturers in the readymade garment industry have fallen into a financial hitch with banks delaying payments against local letters of credit (LC) on the pretext of limited operations during the Covid-19 pandemic.

Different industry associations of the sector have claimed that banks do not pay the bills of local LCs after maturity, while some banks do not even provide maturity dates against delivery bills. However, several banks have denied any delay on their part.

According to Bangladesh Textile Mills Association (BTMA) President Mohammad Ali Khokon, banks usually take 52 days on average to issue acceptances or clear bills.

"But in the present crisis, they are taking 70-80 days to issue bills and make payments. It has increased the operating costs of relevant factories."

According to the BTMA, yarn and textile suppliers' acceptance bills and at sight bill payments worth $187.36 million (equivalent to around Tk1,600 crore) were pending till Sunday.

On Sunday, the BTMA sent a letter to Bangladesh Bank Governor Fazle Kabir, requesting him to issue instructions to banks to clear acceptance bills and at sight bills on time.

NRB Bank Managing Director Mehmud Hossain told The Business Standard that perhaps banks are afraid to issue the acceptance and pay the bills.

"They might think that, if bills are cleared, they will not be able to recover their losses in case buying orders are cancelled or payments against exports are not eventually realised as even a big international buyer like JC Penny has filed for bankruptcy."

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, however said banks should not work in this way.

"They should pay the local LC bills by following proper guidelines. If any bank faces losses by paying local LCs, we can ask the central bank to take measures to mitigate the losses by subsidising or through any other means."

Both these top bankers, however,denied that their banks were delaying any local LC payments.

BTMA members –spinning-weaving-dyeing-printing-finishing mills – are also deemed exporters as they supply yarn and fabric to export-oriented garment factories against issuance of back-to-back LCs and at sight back-to-back LCs.

In the letter, BTMA President Khokon noted that it is more important to issue letters of acceptance and pay bills to the linkage industries on time than the government's declared stimulus packages for them to overcome the current financial crisis.

Another association, Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA), claimed banks owe Tk130 crore in payments to at least 70 of its member factories.

It said if the payments are not cleared to the local producers, they will face an uneven competition with those manufacturers who depend on cheaper imported materials.

Md Abdul Kader Khan, president of BGAPMEA, said banks are now coming up with excuses of limited operations. But not paying acceptance bills after maturity is a violation of the foreign exchange regulations act.

"We have more than 1,200 members. If we get the full money that the banks owe us, it will be a big amount," he added.

The association also wrote to the central bank last week, requesting it to instruct banks to clear the pending acceptance bills.

The central bank on Thursday sent letters to the chief executives of the lenders, asking them to pay the bills on time.