Many countries facing crisis for foreign loans in pvt sector: BB DG
Abu Sazzad: Rising overseas loan to the private sector puts pressure on country’s foreign exchange reserve and economy.
Many countries in the past faced severe hardship to pay the outstanding foreign loan of the private sector. The private sector borrowers are receiving the loan under the existing interest rate, but at the time of payment the central bank are paying on the basis of the current dollar rate which is concern for the economy as money depreciation against US dollar is a common phenomenon in Bangladesh, they pointed out. Now, the private sector stakeholders are seeking foreign loan for lack of quality domestic finance and low interest rate.
According to the available data of Bangladesh Bank, the private sector stakeholder received US$1,405 million loan from the multinational lenders in the last fiscal. The BB statistics showed the foreign loan approval committee approved 134 proposals worth US$ 1,489.66 million in 2017, up from US$1,486.85 million the year before.
In this backdrop, the gross external debt stood over ?$52 billion and government Debt to GDP in Bangladesh averaged 38.51 percent from 1995 until 2018, according to the data of trading economics.
Meanwhile, Bangladesh Bank Financial report disclosed that if the overseas debt marked 50 percent of GDP, the economy will face hard ship to pay the foreign loan.
Already, many economists opined that Bangladesh is turning into foreign debt which is alarming for the economy. The country’s debt burden will higher in the upcoming years for implementing various mega and development projects, they mentioned.
However, the major global lenders are the International Finance Corporation (IFC) of the World Bank, London-based Standard Chartered Bank, Hong Kong and Shanghai Banking Corporation (HSBC), the Asian Development Bank (ADB), Cixing (Hong Kong) Limited and Stoll Financial Services GmbH of Germany are proving loans to Bangladesh.
Talking to Daily Industry, a Bangladesh Bank senior official told on the condition of anonymity that the private stakeholders received foreign loan at a cost below 4.0 per cent, including LIBOR (London Inter-bank Offered Rate) just a few years ago, but the cost has gradually gone up and now it has crossed 6.0 per cent in many cases.
The number of foreign loan recipients keeps increasing in recent times, making it difficult for the central bank to maintain external debt management with limited resources.
“Even some banks are borrowing money from overseas lenders and do business here taking the opportunity of lower cost of capital,” he said.
Commenting on the risk, he said, the cost of borrowing from external sources continues to grow and in many cases it crosses the 6.0 per cent mark. In contrast, the lowest rate of interest in the local banking system hovers at 9.0 per cent.
“The private sector in most cases borrowed long-term finance. If the LIBOR and other expenses keep increasing in the next couple of years, it could cause serious problem for the local entrepreneurs to repay the debt,” he said.
Bangladesh Bank Deputy Government and BIBM Executive Committee Chairman Abu Hena Mohd Razee Hassan said, “We are allowing overseas loan for the private sector following the demand of from local businesses, specially the importers.
Many countries faced crisis after receiving foreign loans for private sector and Bangladesh is going to face the similar situation, he said.
However, experts said foreign borrowing by the country’s private sector is gradually rising turning which is putting pressure on foreign reserve.
Bankers, beneficiaries and financial market analysts said, the fund users might face difficulties in repaying the loans if the cost of borrowing continues to rise.
The appreciation of US dollars against Bangladesh currency also enhances the vulnerability manifold because the loan recipients have to repay the debt in
Shafiul Islam Mohiuddin, former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) agreed that the overseas loan to the private sector is increasing for lower rate.
The banking sector is failing to provide adequate loans to the private sector at a lower rate, and for this, the private stakeholders are seeking foreign loans in the recent years.
The private sector is now making big infrastructural projects in the power and energy sector, which requires large volume of finance, he said. Local banks cannot provide funds even after forming syndication, he claimed.
Dr Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue (CPD) said, the foreign loan in the RMG and power sector is rapidly increasing.
Businesses in Bangladeshi that have taken loans from foreign sources are now under pressure caused by the increasing LIBOR rate and appreciation of the dollar against the taka, according to a research report of Bangladesh Institute of Bank Management (BIBM).
If the exchange rate depreciates more because of these pressures, the private sector debt will become costlier, said the report.