The Letter of Credit (LC) is a critical financial instrument facilitating international trade in Bangladesh, particularly for the ready-made garments (RMG) sector and other major industries. Despite its importance, the LC processing landscape faces significant challenges that hinder trade efficiency and economic growth. This paper identifies and analyses key issues, including documentation discrepancies, fraudulent activities, regulatory compliance complexities, technological and infrastructure limitations, and financial instability. Additionally, the lack of sector-specific expertise and the high costs of LC transactions exacerbate the problem, disproportionately affecting small and medium-sized enterprises (SMEs). The study highlights the systemic and operational barriers impeding the effective execution of LCs. It proposes comprehensive solutions, including digitalizing trade finance, strengthening anti-fraud mechanisms, and capacity building for banking professionals. By addressing these challenges, Bangladesh can enhance its trade facilitation mechanisms, boost global competitiveness, and drive sustainable economic growth.