Published in Dhaka Tribune on 22 December 2020
Industries’ appetite for loans yet to return
Between July and September, industrial loan disbursement was about 12.9 per cent lower than a year earlier
There is yet another datapoint depicting the damage inflicted by the global coronavirus pandemic on the roaring Bangladesh economy: industries’ shrinking stomach for loans.
At the end of September, disbursement of industrial loans, which are short-term credit taken as working capital or for funding capital expenditure, dropped about 12.9 per cent year-on-year to Tk 94,849.7 crore, according to data from the Bangladesh Bank.
“This is the reflection of the stagnant economy thanks to the pandemic,” said Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD).
There was hardly any industrial expansion, while many industries have put their production on halt in the face of suppressed demand amid the ongoing pandemic.
“This was the reason for the falling trend of industrial loans,” Khatun added.
The recovery of industrial loans also registered a negative growth as the repayment capacity of the businesses have eroded thanks to the economic damage inflicted the lethal pathogen, which has so far claimed 7,312 lives and infected 502,183 in Bangladesh.
Banks recovered industrial loans amounting to Tk 84,232.8 crore at the end of September, down 10.9 per cent year-on-year.
The industries had gone into a shock when the government imposed the countrywide general shutdown on March 26 to flatten the curve on coronavirus, Khatun said.
“Most of the industries are trying to survive amid the pandemic as the economic recovery has turned to be wobbly.”
Even though the vaccine has been made, there is uncertainty about its effectiveness.
Khatun though is hopeful that the economy would turnaround in the middle of next year.
At the end of September, overdue and outstanding loans in the industrial sector rose 11 per cent and 8.6 per cent owing to the loan moratorium facility offered by the central bank.
The BB has barred banks from downgrading any loan for the borrowers’ failure to pay instalments this year.
As a result, industrial defaulted loans fell 14.7 per cent year-on-year to Tk 46,412.2 crore at the end of September.
Given the regulatory forbearance of the central bank, a major portion of the outstanding loans has become irregular due to non-payment, said Ahsan H Mansur, executive director of the Policy Research Institute.
“The defaulted loans will increase a lot when the loan moratorium facility is lifted.”
But the BB may extend the deadline on loan moratorium facilities further on a limited scale to help the businesses regain their strength from the prolonged downturn, said Mansur, also the chairman of Brac Bank.
At the end of September, disbursement of large industrial loans fell 13.1 per cent, medium industrial loans 8.9 per cent and small industrial loans 14.9 per cent.
The negative import growth in the current situation indicates that the entrepreneurs are now running their business very cautiously, said Pubali Bank managing director and CEO Abdul Halim Chowdhury.
In the first four months of fiscal 2020-21, imports dropped about 13 per cent year-on-year to $15.8 billion, according to data from the BB.
The extended deferred payment for imports offered by the central bank provided some breathing space.
“That’s the other reason for the falling trend of industrial loans.”
Disbursement of industrial loans will increase over the next six months as the economy recaptures its vigour, Chowdhury added.
Industrial loans given out by banks rose 27.7 per cent quarter-on-quarter in the July-September period, which indicates some economic recovery is going on, said a high official of the central bank.