It may affect new employment generation and overall economic growth
Abu Sazzad: Economists expressed their deep concern for declining loan disbursement to the industrial sector which may affect on poverty alleviation, employment generation and overall economic growth of the country.
Bankers said slower credit growth to the private sector is the major reason behind declining the loans to the industrial sector. Apart from this, industrial sector is holding the lion share of NPL amount, as a result, some banks are discouraging to disburse more loans to the industrial sector, they observed. Actually, banks are forcing to disburse more credit to the private sector for increasing the non-performing loans (NPLs) in the banking sector, they added.
The disbursement of total industrial term loans during January-March, 2019 decreased by 10.19 percent and stood at Tk 15,249.10 crore as compared to Tk 16,979.53crore during January-March, 2018.
However, stakeholders said, the lending rate in several banks for the industrial sector has been increasing gradually, topping 16 per cent in some cases, amid growing liquidity crisis in the country’s banking sector. Country’s businesses fear that the rising rate would hit trade and investment hard.
Interest rate in several banks has increased to 1-3 percentage points while some of the banks are charging up to 16 per cent interest on the businesses, according to the latest Bangladesh Bank data. Mutual Trust Bank managing director and chief executive officer Anis A Khan told the Daily Industry that Banks are suffering from a severe liquidity crisis ahead of the adjustment of advance deposit ratio by September 30 this year to comply with the regulatory instruction.
‘As deposits have become very much scarce, banks are competing with each other to collect deposits and offering high rate of interest against deposits,’ he said.
In December last year, banks’ weighted average rate of deposits was 5.26 per cent that increased to 5.34 per cent in January this year.
If high return on national savings certificates is considered a reason for the fund scarcity, reducing the interest rate on NSCs could help improve diversion of funds to the banking sector, Anis added.
‘Banks have been requesting the government to reduce the rate for long,’ he said, adding that they had made the same request to the prime minister at a recent meeting.
The businesses said that the rising interest rate would affect their competitiveness in international trade and investment.
The move of the banks to hike lending rate was also contradictory with the government’s plan to improve the country’s ranking in the ease of doing business index.
Besides, the banks’ move to increase lending rate was also in verse to the Prime Minister Sheikh Hasina’s stance to bring down the interest rate of bank loans to single digit.
On March 31 this year, Sheikh Hasina, for the last instance, said that the government would take measures again to reduce the interest rate for the sake of the country’s industrialisation.
‘We’ll sit again to discuss how to reduce the interest rate on bank loans,’ she said.
Bankers said that high sales of national savings certificates due to their high rates of yield also squeezed the banks’ scope for getting fund at lower prices and people would not put their fund where they would get low interest.
Siddiqur Rahman, former president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said higher lending rate is impeding the investment in the country.
He urged the central bank to undertake necessary steps for providing more loans to the industrial sector to attain a sustainable economy. “Declining of industrial loan is not desirable to consider the present context of the economy”, he said.
It would also increase non-performing loans in the banking sector as business with such a high lending rate would not be viable, said the president of the trade body of readymade garment industry that constitutes 83 per cent of the country’s total export earnings.
Nihad Kabir, president of the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) said industrial loan is an important factor for industrialisation in the country.
Due to lack of adequate energy and power, a good number of businessmen failed to repay installments of their loans in due time. He blamed dull business environment, poor infrastructure and lack of power and gas supply to the industries for their failure to repay the loan installments. She urged the government to provide power connection immediately to the new factories.
Bangladesh Bank officials said that the liquidity crisis in the banks had been intensifying amid slow growth in deposits.
BB data showed that the deposit growth in the country’s banking sector was 9.79 per cent in January this year and it has remained below 10 per cent since July last year, prompting banks to go for collection of deposits at high rate. Some of the banks are even offering more than 10 per cent to collect deposits.
Banks in recent times have increased borrowing money from the central bank to cope with the shortage while inter-bank loan transactions have also risen, they said.
Banks borrowed around Tk 42,000 crore from the central bank through repurchase agreement (REPO) in the period between July, 2018 and till April 9, 2019 while the entities borrowed only Tk 572.86 crore in the entire 2017-2018 fiscal year.
Apart from these, non-performing loans in the country’s banking system is another factor, which has created additional pressure on the system.
In this backdrop, the default loan of the banking sector is over Tk 1.10 lac crore as on January to March period.
On the other hand, the MPS set the private sector credit growth target at 13.2 per cent for the first half (July-December) of FY20 and 14.8 per cent for the full year against the 16.5 per cent growth target set for the previous fiscal year (FY 2018-19).