Fall in private firms’ foreign borrowing cheers banks

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Foreign borrowing by private-sector firms has fallen substantially, giving a much-needed relief to a number of local banks burdened with excess liquidity, officials said.

Although the number of proposals for external loans approved by the scrutiny committee under the leadership of the Bangladesh Bank (BB) governor has gradually gone up in recent years, they said, the actual inflow of overseas funds has been on a significant decline over the last three financial years since 2013-2014.

Bankers, businesspeople and credit-market analysts pointed out some key factors behind the change. These include a narrowing gap of cost of capital between internal and external sources, fluctuation in dollar rate and application of strict monitoring tools by the scrutiny committee against breach of financial rules.

According to the central bank statistics, private entrepreneurs drew foreign loans equivalent to US$1840.18 million (over $1.8 billion) in FY'14 and the volume declined to US$977.79 million and US$729.64 million in FY'15 and FY'16 respectively.

The data recorded the outstanding aggregate loans worth US$ 2524.28 million, US$ 3194.01 million and US$ 3427.11 million in the last three consecutive fiscal years.

In the FY'16, the borrowers repaid US$ 474.00 million worth of principal amount and US$98.20 million and US$ 1.06 in interest and commission respectively.

But the scenario was completely different on the number of approved proposals for such loans as the six-man scrutiny committee approved 102 proposals involving US$ 1182.29 million in the calendar year 2013 followed by 162 proposals amounting to US$ 1827.17 million in 2014, 129 proposals involving US$ 1930.25 million while 148 proposals amounting to US$ 1383. 97 million were recorded in 2016.

Contacted, Dr. Md. Azim Uddin, a joint director who is representing the Bangladesh Investment Development Authority (BIDA) on the scrutiny committee, said a growing number of private entrepreneurs proposed external borrowing in recent years.

Various factors like debt-equity ratio (70:30), paid-up capital of the company and utilization status of previous loans, if taken, were justified before the approval for foreign loans where the rate of interest is less than 4.0 per cent, he said.

"We normally crosscheck every document the companies submit to the committee to avert any possible act of fraudulence," he said about the clearance process for borrowing from overseas lenders.

Seeking anonymity, a senior BB official said the central bank wants to discourage the private sector from taking external funds as the volume of unused money in local banks is ballooning.

"That's why the BB has been issuing various tough criteria for such funds, which were reflected in the official data," he added.

Chairman of the Association of Bankers, Bangladesh (ABB) Anis A Khan said the statistics over the external debts indicated that the demand for such finances had declined in recent years.

But local-currency transactions for private sector have gone up due mainly to lower interest rate, which is a great respite for the banks, said Mr. Khan, also managing director and CEO of Mutual Trust Bank Ltd (MTB).

"Local banks are full with credits and both term loans and working capital are available at single digit. That's why interest of private entrepreneurs in internal borrowing is growing."

Explaining the situation, additional director (research) of the Centre for Policy Dialogue (CPD) Dr Khondaker Golam Moazzem said average amount of foreign loan per loanee was over US$ 9.0 million in the FY'16, down from 15 million in the previous fiscal.

He noted mainly large business groups having full compliance used to take foreign loans allured by its affordable interest rate. If such firms are shown some sorts of discouragement, the average number of loans will further go down.

"Yes, it is a good news for the local banks. I think the volume of foreign loans would further decline in the coming days if the gap of cost of the capital between internal and external sources continues declining," the policy researcher predicted.

Financial Express Published : 15 Feb 2017

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