Textile exporters and millers in Bangladesh are under growing financial strain as a large number of troubled commercial banks have failed to settle long-overdue payments against local back-to-back letters of credit (LCs), leaving accepted bills unpaid for years despite contractual maturity obligations.
According to bankers and industry stakeholders, outstanding liabilities linked to such unpaid bills have accumulated to around Tk3,000 crore to Tk4,000 crore over the past five years. These payments relate to accepted bills that were not honoured after maturity, even though the regulatory framework under the Guidelines for Foreign Exchange Transactions 2018 requires settlement upon due date.
In a back-to-back LC arrangement, export-oriented garment manufacturers import raw materials such as yarn and fabric from local suppliers against confirmed export orders from foreign buyers. Once a bank accepts the supplier’s bill, it becomes legally responsible for payment—typically within 120 days of acceptance. However, multiple cases show delays extending to several years beyond maturity.
A senior official of the central bank, Mohammad Shahriar Siddiqui, assistant spokesperson and director of Bangladesh Bank, confirmed that there is no provision permitting non-payment against accepted bills. He stated that in normal circumstances, overdue liabilities are recovered by debiting the concerned commercial bank’s account maintained with the central bank. Where disputes arise, resolution is handled case by case upon appeal. He also noted that instructions have been issued requiring immediate settlement of such liabilities.
An earlier directive issued on 26 October 2022 by Bangladesh Bank instructed all banks to ensure timely payment of both local and foreign LCs upon maturity, warning that failure to comply could lead to cancellation of Authorised Dealer licences and disciplinary action against responsible officials.
Selected overdue LC exposures
| Entity / Case | Amount | Status | Banks involved (where stated) |
|---|---|---|---|
| Ahmed Group | $15 million (~Tk200 crore) | Longstanding dues | Multiple banks |
| Bank Asia exposure | $16 million | Multiple overdue cases | Various banks |
| BTMA sector estimate | ~$90 million | Latest available estimate (November) | Various banks |
| Mosharaf Composite Textile Mills | ~$2 million | Up to 5 years overdue | Including Islami Bank Bangladesh, Premier Bank, Agrani Bank, Exim Bank |
| New Town Knitwear supplier case | $192,000 | ~5 years overdue | Islami Bank Bangladesh, Exim Bank |
| Optimum Fashions Wear Ltd | $120,000 | ~18 months overdue | Two banks |
| Abanti Colour Tex Ltd | $472,000 | ~2 years overdue | Not specified |
| Crony Apparels Ltd | $35,000 | ~2 years overdue | Not specified |
| NZ Apparels Ltd | $800,000 | Over 1 year overdue | Multiple banks |
Managing Director of Bank Asia, Sohail RK Hussain, said delayed settlement of accepted bills has become increasingly widespread in recent years. He noted that while foreign LC obligations are promptly settled through central bank intervention, similar enforcement is needed for local LCs due to the inability of around 15 distressed banks to meet obligations.
He added that reminder letters have been issued to defaulting banks and legal steps are under consideration in persistent cases.
Industry association data indicates that the Bangladesh Textile Mills Association (BTMA) estimates around $90 million remains stuck in unpaid transactions based on its latest available figures.
Exporters report severe operational disruption. Md Mosharaf Hossain, Managing Director of Mosharaf Composite Textile Mills, stated that delayed payments have affected loan repayment, working capital availability, and wage payments. He said that although settlements are contractually due within 120 days, some dues remain outstanding for up to five years.
Officials at Agrani Bank stated that banks cannot leave such liabilities unsettled indefinitely and indicated that individual cases would be examined where irregularities persist.
Several exporters have initiated legal action and issued formal notices against defaulting companies and relevant banking officials due to prolonged non-payment, while continuing to report cash flow constraints linked directly to unpaid LC settlements.