Lesson 8 of 39 · Part B · Level 2 · Explained
Opening an import LC: who and how
What kinds of import undertakings a bank may give, who it may open an LC for, how the bill is paid, and the terms every import LC must carry.
In Lesson 7, FOB imports and freight, we watched the bank pay freight and issue a certificate so that goods could travel. That finished Part A. Now Part B opens the biggest tool in the import room: the letter of credit.
It is Rakib's first week as a new import desk officer. His team lead, Sadia, hands him a file. Tahmid, a customer, wants an LC to buy a machine from a supplier abroad he has never dealt with before. "Easy," thinks Rakib. "Fill in the form, press the button."
Sadia laughs. "Before we press anything, ask three questions. Is this our customer? What documents will the LC ask for? And is this the kind of LC we are even allowed to open?" This lesson answers all three.
In plain words
This short paragraph sets the scene for the whole of Part B. It says what an AD (an authorised bank branch) may do.
ADs may issue, advise, notify or confirm:
- any LC,
- an authority to purchase,
- a guarantee, or
- a similar undertaking
covering imports into Bangladesh, where carrying it out would involve:
- a payment in Taka to a non-resident account, or
- a payment in foreign currency.
The catch is in the last few words: the AD does this in line with the instructions that follow in this Part. So B-1 opens the door, and the next paragraphs say how to walk through it.
The circular doesn't define "authority to purchase" here. Simply treat it as one of the payment promises that B-1 covers, along with LCs and guarantees.
At the desk
Rakib asks Sadia, "Are we only allowed to open LCs, or can we also confirm one, or issue a guarantee for an import?" Sadia points to B-1: an AD may issue, advise, notify or confirm an LC, authority to purchase, guarantee or similar undertaking for imports into Bangladesh. "But every one of them follows the rules in the rest of Part B," she adds. "B-1 is the front door, not the whole house."
Key words
- Letter of credit (LC)
- A bank's promise to pay the seller, as long as the seller presents the right documents on time.
- Issuing bank
- The buyer's bank that opens the LC and promises to pay against the right documents.
- Confirmation
- A bank's own promise to pay under an LC, added on top of the issuing bank's promise when the issuing bank asks for it.
Read the rule as written (Para B-1)
ADs may issue, advise, notify or confirm any LC, authority to purchase, guarantee or similar undertaking covering imports into Bangladesh the implementation of which would involve a payment in Taka to a non-resident account or a payment in foreign currency in accordance with the instructions prescribed hereunder.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part B, paragraph 1 (page 11). The original circular is the authority.
In plain words
Who can a bank open an LC for, and how does the money come in when the bill is paid?
Who. ADs should open LCs, against specific authorisation, only on behalf of their own customers who:
- maintain accounts with them, and
- are known to be participating in the trade.
So an account alone is not enough. The bank should also know that the customer is really in this line of business. (The circular doesn't spell out in this paragraph what form the "specific authorisation" takes.)
How the bill is paid. When the bills drawn under the LC are retired (paid off), the AD must receive the money in one of two ways:
- by debit to the customer's account, or
- by a crossed cheque drawn on the customer's other bank.
Cash over the counter is not on that list.
The exception. These restrictions do not apply to imports of articles for the private use of the importer, as permitted in the IPO in force.
At the desk
Lamia, who imports pharmaceutical raw materials and banks with Sadia's branch, comes to retire an import bill. She has funds in her account at another bank. Rakib asks, "Can she bring cash instead?" Sadia shakes her head: "Debit her account with us, or take a crossed cheque drawn on her other bank. Those are the two ways B-2 allows." Lamia writes the crossed cheque, and the bill is retired cleanly.
Key words
- Applicant
- The buyer (importer) who asks a bank to open an LC.
- Retire a bill
- Pay off an import bill and take the documents.
- Crossed cheque
- A cheque marked so that it can only be paid into a bank account, not cashed over the counter.
- Import Policy Order (IPO)
- The government's rule book on what may be imported and on what conditions. Issued by the Ministry of Commerce for a few years at a time.
Read the rule as written (Para B-2)
ADs should establish LCs against specific authorization only on behalf of their own customers who maintain accounts with them and are known to be participating in the trade. Payments in retirement of the bills drawn under LCs must be received by ADs by debit to the account of the concerned customer or by means of a crossed cheque drawn on the drawee's other bank. These restrictions shall not apply to import of articles for the private use of the importer as permitted in the IPO in force.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part B, paragraph 2 (page 11). The original circular is the authority.
Terms on which LCs may be opened
In plain words
This is the "terms and conditions" paragraph. It has five parts.
(1) Documentary LCs only. Every LC and similar undertaking for imports must be a documentary LC. Payment is made against full sets of transport documents showing the goods were sent to a destination in Bangladesh:
- onboard (shipped) bills of lading,
- air waybills,
- railway receipts,
- truck receipts, or
- post/courier parcel receipts.
Every LC must also call for signed invoices and certificates of origin. If an import needs any other document, or payment at set intervals or in some other way, the LC itself should include those instructions.
(2) Screening shipments. ADs should, at their own discretion, track shipments for relevant imports through a vessel/container tracking system recognised by the competent authority. So the bank decides which deals need it; the circular doesn't list them.
(3) LCs that need Bangladesh Bank first. It is not permissible to open:
- clean LCs,
- revolving LCs,
- standby LCs, or
- LCs with a realisation clause,
except for EPZ/EZ/HTP companies. Applications for such LCs go to Bangladesh Bank with full particulars. (The text places the EPZ/EZ/HTP exception in brackets after the realisation clause; it doesn't say clearly whether it covers the other three types too. The circular also doesn't define a "realisation clause".)
(4) Transferable LCs. ADs may open transferable LCs for imports. They may also allow amendments without asking Bangladesh Bank, as long as the amendments don't break foreign exchange rules or the IPO.
(5) Banned countries. No import LC may be opened in favour of a beneficiary in a country from which imports into Bangladesh are banned by the competent authority.
At the desk
Tahmid's supplier sends a message: "Please open a clean LC. We'll get paid without sending shipping documents; it's faster." Rakib looks worried, and Sadia explains: import LCs must be documentary, and a clean LC can't be opened by the branch; it goes to Bangladesh Bank with full particulars. Tahmid chooses a normal documentary LC calling for a full set of onboard bills of lading, a signed invoice and a certificate of origin. Since the supplier is new, Sadia also decides to track the vessel through a recognised tracking system.
Key words
- Documentary LC
- An LC that pays only when the agreed documents, such as the transport document, invoice and certificate of origin, are presented.
- Clean LC
- An LC that pays without shipping documents. Under B-3, an AD may not open one for an import without referring it to Bangladesh Bank.
- Revolving LC
- An LC that renews itself, by amount or by time, for repeat shipments, so a new LC is not needed for each one.
- Standby LC
- A guarantee-like LC that pays if the applicant fails to perform.
Read the rule as written (Para B-3)
(1) Documentary Credits: All LCs and similar undertakings covering imports into Bangladesh must be documentary LCs and should provide for payment to be made against full sets of onboard (shipped) bills of lading, air way bill, railway receipts, truck receipts, post/courier parcel receipts showing despatch of goods covered by the credit to a destination in Bangladesh. All LCs must specify submission of signed invoices and certificates of origin. If any particular import requires submission of any other document or the remittance of exchange at certain periodical intervals or in any other manner, the LC should incorporate those instructions.
(2) Screening of underlying import shipments: ADs should, at their own discretion, conduct the tracking of shipments for relevant import transactions through vessel/container tracking system recognized by competent authority
(3) LCs requiring prior permission: It is not permissible to open clean or revolving or standby letter of credits or LC with realization clause (except EPZ/EZ/HTP companies). Applications for opening such LCs should be referred to Bangladesh Bank with full particulars.
(4) Transferable LCs: ADs may open transferable LCs for imports into Bangladesh. They may also allow without reference to Bangladesh Bank amendments that do not violate foreign exchange regulations and the IPO in force.
(5) Opening of LCs for imports from countries banned by the competent authority: It is not permissible to open import LCs in favor of beneficiaries in countries from which imports into Bangladesh are banned by the competent authority.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part B, paragraph 3 (page 11). The original circular is the authority.
Putting it together
So far: an AD may issue, advise, notify or confirm LCs, guarantees and similar undertakings for imports, under the rules of Part B. It opens LCs only for its own account holders who are known to be in the trade, and receives payment by account debit or a crossed cheque on the customer's other bank (private-use imports under the IPO are exempt). Every import LC is documentary, calls for transport documents to Bangladesh, signed invoices and certificates of origin; clean, revolving, standby and realisation-clause LCs go to Bangladesh Bank; transferable LCs are allowed; and LCs for banned countries are not.
Next: Lesson 9, Land ports and LC timing.