Credit roll-out by local private banks has increased substantially in recent times on the back of a pick-up in business activities thanks to political calm.
Credit growth of the private banks, whose share in the total credit disbursed comes to 69.35 percent, stood at 15.56 percent on June 30, compared to a year earlier.
The state-owned and foreign banks that account for 23.82 percent of total loans have seen negative credit growth in the year to June 30, according to data from the central bank.
Credit disbursement by the state-owned commercial banks declined 4.17 percent and foreign banks 1.67 percent, while the five state-owned specialised banks registered 13.12 percent growth on June 30 from a year ago.
At the end of June, total credit stood at Tk 491,210 crore, with almost half of it being industrial credit that comprises working capital and term-loans.
Working capital in both private and foreign banks rose significantly, statistics from Bangladesh Bank show.
In fiscal 2013-14, working capital disbursement by private banks rose around 20 percent year-on-year and that of foreign banks 95 percent. But state-owned commercial banks' working capital disbursement fell 56 percent.
Term loan disbursement by private commercial banks rose 30 percent, while that of state-owned commercial banks and foreign banks 56 percent and 26 percent respectively.
Khondker Ibrahim Khaled, a former deputy governor of the central bank, said the private banks' credit growth is nothing out-of-the-ordinary as the political situation has calmed down. “In fact, a vacuum does not exist for long.”
New investment though is slightly low for non-availability of gas and electricity connections to new industries, he said.
The new factories are being run with fuel-based generators, which increase operational costs. If two factories from the same industry are run with two different sources of energy, they cannot compete with one other, according to Khaled. “As a result, the new industries are hesitant to come to the market.”
He also said the fall in credit disbursement by state banks is due to their shyness to distribute loan owing to earlier scams.
Zaid Bakht, a director of Sonali Bank, echoed the same, adding that state-banks' vigilance is high mainly after the Hall-Mark scam.
He said the reason for the private banks' increase in credit disbursement is that they mainly provide import financing and working capital and imports increased recently and so did businesses' demand for working capital following the diffusion of political tension.
Bakht, also the research director of Bangladesh Institute of Development Studies, expects credit roll-out to increase much next year, when the Padma bridge project is in full swing.
Meanwhile, a branch manager of the state-owned Agrani Bank told The Daily Star that while they hesitate to extend a Tk 100 crore loan even after adequate collateral, the private banks give out Tk 200 crore loans against the same collateral.
“Banking by private banks is much more aggressive than the state banks,” he added.
A branch manager of UCBL Bank, a private bank, said they are given a specific target every year and if they fail to meet that the bank cannot do business. “We still scrutinise all paperwork before disbursing loans.”News:The Daily Star/18-Aug-2014
NRB Bank yesterday made its foray into the largely neglected segment of small and medium enterprises as part of its promise to contribute to creating entrepreneurs.
To start off, the newly set-up bank handed over loan sanction letters to owners of Ligion Herbal Ltd, a herbal company, and Bimurto, a handicraft company, at a ceremony at the capital's Sonargaon Hotel.
Ligion Herbal's Chairman Tania Haque and Bimurto's owner Wafi Islam got loans of Tk 1 crore and Tk 18 lakh respectively to expand their businesses.
NRB Bank, which began operations in August last year, has built a team and developed products for SMEs, said Mukhlesur Rahman, managing director of NRB Bank, on the occasion.
“It is a great thing that we have launched products for SMEs.”
Iqbal Ahmed, chairman of NRB Bank, said the best way to create entrepreneurs is to finance the SMEs, as almost all conglomerates across the world as well as in Bangladesh started off as small ventures.
“Our motto is to create SMEs, as without them the country will not grow,” he said, while urging his bankers to educate customers about the products.
Abul Kashem, deputy governor of Bangladesh Bank, said the SMEs today would become big industries in future if they are provided with adequate financing and other facilities.
He advised the SMEs to maintain accounting and prepare business cases properly, so that banks find them to be feasible clients.
Kashem suggested NRB Bank use the refinancing scheme of Bangladesh Bank to provide low-cost funds to SMEs.
Syed Md Ihsanul Karim, managing director of SME Foundation, welcomed the bank's move to the world of SMEs.
Presenting a paper on challenges and future of SMEs, Toufic Ahmad Choudhury, director general of Bangladesh Institute of Bank Management, said SME financing is still regulator-driven; banks are yet to participate in it spontaneously.
About 85 percent of the loans lent in the country are for Tk 2 lakh or less and the remaining 15 percent are corporate loans, he said.
“All the 56 banks can't rely on 15 percent for survival. You have to go to the SMEs and create a market for yourself.”
He also asked banks to separate trading from the SME scheme, as traders are already doing fine within the current framework of traditional banking.
Choudhury said banks would have to understand SME financing properly as this segment is very different from traditional banking. He advised banks to understand the needs of SMEs properly and customise their products.
The economist urged banks for streamline the documentation process for SMEs, as at present they need to submit 27 different papers to qualify for a loan.
Wahid-Bin-Ahmed, vice-president of NRB Bank for SME banking, and Zeeshan Hasib, head of corporate banking of NRB Bank, also spoke.
NRB Bank has so far opened eight branches, with plans to open five more this year.News:The Daily Star/17-Aug-2014
Shahjalal Islami Bank Limited (SJIBL) organised its Half Yearly Managers’ Conference at a hotel in Dhaka on Thursday.
The inaugural ceremony was presided over by Farman R Chowdhury, Managing Director and CEO of the bank.
AK Azad, Chairman of the Board of Directors of the bank was present at the conference as the chief guest, said a press release.
BASIC Bank will regain its pride and glory as its present board is working relentlessly to regain the bank’s strength by overcoming the problems that the bank suffered in the past.
Alauddin A Majid, Chairman, Board of Directors, BASIC Bank Limited said this while speaking as a chief guest at the inauguration of Branch Manager’s Conference of the bank held in Dhaka on Saturday.
Mentioning about the news on corruption and irregularities in the bank published at different dailies in the recent past, he said the board at present is trying to correct those.
Reiterating the determination of the Board of uprooting all corruption from the bank he assured that the Board would be able to improve the situation and restore the image of the bank step by step. “You can depend on us,” he reassured. Fazlus Sobhan, Managing Director (Current Charge), Kanak Kumar Purkayastha, Abdul Qajum Mohammad Kibriya, Md Ruhul Alam and Md Salim, Deputy Managing Directors, managers of 68 branches of the bank were present at the conference.
Chairman of the bank said nobody should involve in any blame game. We will go ahead with whatever assets we have received by proper utilising our manpower.
From left, Mustafa K Mujeri, director general of BIDS; Salehuddin Ahmed, a former central bank governor; Atiur Rahman, governor of Bangladesh Bank; AB Mirza Azizul Islam, former caretaker government adviser; and Monzur Hossain, senior research fellow of BIDS, attend a seminar on monetary policy in Dhaka yesterday.
Economists were divided yesterday over allowing local firms to borrow from external sources amid the stubbornly high bank lending rates in the country.
Salehuddin Ahmed, a former central bank governor, raised the question as to why foreign borrowing by the private sector was encouraged suddenly.
In its monetary policy statement for July-December, the central bank set the private sector borrowing ceiling at 16.5 percent for the second half of the year, with 2.5 percent coming from foreign borrowing. “I am afraid this could go up to 5 percent.”
Ahmed said foreign borrowing for the private sector should not be encouraged this much, as there is excess liquidity in the market.
“It would be difficult for borrowers to repay the loans if they don't earn. As a result, it might put strain on the foreign exchange reserves. Plus, there might be losses if the foreign exchange rates fluctuate.”
Ahmed said the central bank should put more emphasis on why the lending rates are not going down -- the predominant reason behind the private sector's clamour for foreign loans.
AB Mirza Azizul Islam, a former finance adviser of caretaker government, said the foreign borrowing could cause currency and maturity mismatch.
As per his knowledge, this was the first time any indicative target for foreign borrowing has been given in the monetary policy statement.
“I am not totally against it as bank lending rate is high in the country -- it can be allowed to help entrepreneurs cut their production cost.”
He said foreign borrowing could be allowed for industries whose earnings are in foreign currencies, as it will not strain the country's reserves.
“If the earning in exclusively domestic currency and the loan will have to be serviced in foreign currency, then there will be currency mismatch. There might also be maturity mismatch if borrowing is for one year while production will come after five years.”
He, however, said the central bank has to be careful, as money from abroad is being borrowed at higher interest rate, with one loan from China costing as high as 6 percent.
Ahsan H Mansur, executive director of Policy Research Institute, said creditworthy entrepreneurs have the rights to borrow from anywhere, as they are not getting loans at lower interest rates from the local market.
Bangladesh Bank Governor Atiur Rahman said the central bank has opened up the scope for foreign private borrowing to make local firms competitive as their competitors abroad enjoy lost cost loans.
“We are providing money to borrow from abroad to the industries that are export-oriented and import-substitution. They are either earning foreign exchange or saving foreign exchange. All of them are rated.”
“There is nothing to be concerned at this stage,” Rahman said, adding that the central bank will monitor the issue along with the Board of Investment.
Rahman said most of the foreign borrowings are mid-term loans with loan repayment period ranging between four and seven years. “I see no immediate mismatch.”
With $22 billion in reserves at its disposal, the central bank does not need to worry about the risks it did when the reserves were $10 billion, the BB governor said.
He said time will come when the rate of interest in taka will go down and that of the international market will go up as the recovery is gathering steam. “At that time, we will able to take the foreign borrowing to a stable position.”
The debate over allowing local firms to borrow from international sources came at a seminar on the central bank's latest monetary policy statement at the Bangladesh Institute of Development Studies (BIDS) in the capital.
Hassan Zaman, chief economist of the central bank, said the advantages of private sector foreign borrowing outweigh related risks.
Foreign borrowing with its lower interest rates makes Bangladeshi firms more competitive in export markets and encourages local output and employment growth, he said, adding that the exchange rate risks can be managed through hedging products.
“BB is also encouraging quarterly repayments to smooth outflows,” Zaman said.
Meanwhile, the BB governor said the central bank is seriously thinking about the issue of asset quality and asset liability mismatch.
“This is bit of a rigid market. We are trying to take to flexible exchange and interest rates so that Tom, Dick and Harry can't come and take money using a paper and go away,” Rahman said.
There is no bad news over inland bills purchase (IBP) following a major scam, as supervision has improved, he added.
About some banks dispute with Sonali Bank over unpaid IBP, he said the banks will have to resolve their liabilities by September.
“It is their business how they will do it. We will simply deduct the money if we find any unresolved IBP after September. That is as simple as that. The major liability lies with banks as they have signed the documents without checking their authenticity.”
His comments came after Zaid Bakht, a director of Sonali Bank, said banks were refusing to purchase the state-run bank's IBPs worth Tk 1,760 crore.
The governor also said the market is incomplete in some areas and the central bank is working with the securities regulator in areas such as trade in receivables, issuance of corporate debts and hybrid financing like private equity and venture capital.
He said the corporate bond market is not vibrant in Bangladesh as the tax incentives which existed in the past are not given anymore.
“We will have to work with the National Board of Revenue so that we can revive the fiscal incentives such that the local corporate bond market develops.”
Mustafizur Rahman, executive director of the Centre for Policy Dialogue, said the central bank should provide incentives to entrepreneurs who want to set up industries outside of Dhaka and Chittagong.
Mirza Azizul Islam said on one hand, the excess liquidity in the banking system has gone up and on the other hand, the demand for credit has gone down. But, the interest rate has not fallen proportionately yet, as the banks are fixing the price.
Zahid Hussain, lead economist of the World Bank's Dhaka office, said the rate of interest has not gone down as there is competition between banks.
Mustafa K Mujeri, director general of BIDS, moderated the discussion, while Monzur Hossain, senior research fellow of BIDS, made a presentation on the monetary policy.News:The Daily Star/15-Aug-2014