Back-to-Back LC in Bangladesh: Latest Rules, Process and Bangladesh Bank Guidelines (2026 Update)

An updated guide to Back-to-Back Letter of Credit (BTB LC) in Bangladesh covering rules, process, value addition requirements and Bangladesh Bank FE Circular No. 33 for exporters, bankers and trade professionals.

Back-to-Back Letter of Credit (BTB LC) remains one of the most vital trade financing mechanisms powering Bangladesh’s export-oriented industries. With the country’s strong dependence on export sectors—especially ready-made garments—this facility allows exporters to import raw materials without immediate cash payment, ensuring smooth production and shipment cycles.

Aligned with the latest regulatory framework, particularly Bangladesh Bank’s FE Circular No. 33 dated 14 August 2025, this article presents a clear and updated overview of back-to-back LC operations in Bangladesh.

What is a Back-to-Back Letter of Credit (BTB LC)?

A Back-to-Back LC is an import letter of credit opened by an exporter against a confirmed export LC or a valid export contract. It enables exporters to procure necessary raw materials, accessories, or services required to fulfill export orders.

In Bangladesh, this facility is primarily used by export-oriented industries operating under bonded warehouse facilities. The key principle is that the import is secured against future export proceeds, minimizing upfront foreign exchange requirements.

Difference Between Export LC and Back-to-Back LC

Although closely related, Export LC and Back-to-Back LC serve different purposes:

• Export LC: Issued by a foreign buyer in favor of a Bangladeshi exporter

• Back-to-Back LC: Issued by a Bangladeshi bank in favor of a foreign supplier

The export LC acts as the primary security for opening a BTB LC. While both are interconnected, they are legally independent instruments with separate obligations

Import Under Back-to-Back Arrangement in Bangladesh

Import under back-to-back arrangement is strictly regulated and permitted only for eligible export-oriented units. The imported goods must be directly linked to a specific export order or contract.

The central concept behind this arrangement is foreign exchange neutrality. This means that payment obligations arising from imports are expected to be settled using proceeds from corresponding exports. This ensures that the country’s foreign currency reserves are not adversely impacted.

Bangladesh Bank Rules on Back-to-Back LC

Back-to-back LC operations are governed by Bangladesh Bank through foreign exchange circulars and the Import Policy Order. The most recent and comprehensive guidelines are outlined in FE Circular No. 33 issued on 14 August 2025.

Key regulatory provisions include:

• A valid export LC or export contract must exist before opening a BTB LC

• Import value must remain within the prescribed percentage of net FOB export value

• Usance period generally should not exceed 180 days

• Payment of import bills must be made at maturity

• Settlement must be completed even if export proceeds are delayed

These rules are designed to maintain discipline in foreign exchange transactions and prevent misuse of trade financing facilities.

Role of Back-to-Back LC in Bangladesh’s Garment Industry

The ready-made garment (RMG) sector is the largest beneficiary of BTB LC facilities in Bangladesh. Manufacturers rely heavily on this mechanism to import fabrics, yarn, trims, and accessories against confirmed export orders from international buyers.

By reducing the need for immediate working capital, BTB LC significantly enhances the competitiveness of Bangladeshi exporters in global markets. 

It also supports timely production and shipment, which are critical in the fast-moving apparel industry.

Bangladesh Bank Guidelines for Authorized Dealer (AD) Banks

Authorized Dealer (AD) banks play a crucial role in ensuring compliance with Bangladesh Bank regulations. Under FE Circular No. 33, banks are allowed to open BTB LCs subject to strict verification and monitoring.

Key responsibilities of AD banks include:

• Checking of bonded warehouse license

• Ensuring compliance with the prevailing Import Policy Order

• Proper valuation and classification of goods under HS Code

• Accurate reporting through Bangladesh Bank’s online Import Monitoring System

• Compliance with AML/CFT regulations to prevent financial irregularities

Banks must exercise due diligence at every stage to avoid misuse of the facility.

Value Addition Requirement in Back-to-Back LC

One of the most important compliance requirements is maintaining adequate value addition. Bangladesh Bank mandates that the import value under BTB LC must not exceed a certain percentage of the net FOB value of exports.

To calculate net FOB value correctly, exporters and banks must exclude components such as

- freight, 

- insurance, and 

- commission where applicable.

This requirement ensures that a reasonable portion of the export value is generated domestically, contributing to the national economy.

Step-by-Step Process to Open Back-to-Back LC

Opening a back-to-back LC involves a structured process that ensures compliance and risk assessment. The typical procedure includes:

• Receipt of a export LC or export contract

• Verification of exporter eligibility and entitlement in bonded warehouse license

• Assessment of buyer risk (payment risk) and seller risk (performance risk)

• Evaluation of exporter’s production capacity, cost structure, and financing needs

• Determination of permissible import value

• Opening of BTB LC, usually on a usance basis

• Reporting to Bangladesh Bank’s online systems

• Continuous monitoring of import, production, shipment, and export realization

This systematic approach helps minimize risks and ensures smooth transaction flow.

Import Policy Compliance for Back-to-Back LC

All imports under back-to-back arrangements must strictly comply with Bangladesh’s Import Policy Order. Goods that are restricted or banned cannot be imported under any circumstances, even if backed by an export LC.

Authorized Dealer banks must ensure consistency between LC terms, import regulations, and customs requirements to avoid legal or regulatory issues.

Documentation Required for Back-to-Back LC

Proper documentation is essential for compliance and smooth operation.

For opening BTB LC:

• Export LC or export contract

• Proforma invoice, indent, or supplier contract

• LC application or agreement form

• Form IMP

• Insurance cover note

For settlement and compliance:

Back-to-back import LC documents including -

• Commercial invoice and packing list

• Transport documents (Bill of Lading/Airway Bill)

• Certificate of Origin

• Bill of Entry

Timely submission and proper matching of documents are critical to avoid discrepancies and regulatory penalties.

Risk Management and Compliance Considerations

Back-to-back LC transactions involve several risks, including:

• Realization of export proceeds

• Over-invoicing or under-invoicing

• Misuse of bonded warehouse facilities

Bangladesh Bank emphasizes enhanced monitoring, strict due diligence, and timely reporting to mitigate these risks. Banks and exporters must adopt robust compliance practices to ensure transparency and accountability.

Conclusion

Back-to-back LC continues to be a cornerstone of Bangladesh’s export financing system. When implemented in accordance with Bangladesh Bank guidelines, it provides a reliable mechanism for importing raw materials while maintaining foreign exchange discipline.

For exporters, bankers, and trade professionals, a clear understanding of BTB LC rules, processes, and compliance requirements is essential for sustainable and efficient international trade operations. 

💬 Did this help? I’d love to hear your thoughts! Drop a comment below and tick the "Notify me" box to join the conversation.

Supporting this blog: As a free resource, this site is supported by the ads you see. Simply staying to read or sharing this post with a friend helps keep the content coming. Thank you for being here!