Appetite for project loans wanes

Businesses’ appetite for term loans, typically used for major investments or acquisitions, shrank in the first half of the fiscal year, due mainly to the unstable political climate in the lead-up to national elections.

Between July and December last year, banks disbursed Tk 21,565 crore in term credit, down 1.77 percent year-on-year, according to central bank statistics.

During the period, term lending to large-scale industries increased 5.75 percent and small-scale industries 39.43 percent, while it plummeted 28.26 percent in case of medium-scale industries.

remmitanceMd Nurul Amin, managing director of NCC Bank, blamed the political turmoil for the low demand for term loan, particularly from new industries, manufacturing and textile sectors, reports the Daily Star.

Another reason for the fall in demand for term loans, particularly those with longer maturity dates, is that the private sector borrowers now have access to international funding, he said. The central bank gave approval for $534 million in term credit in the first half of fiscal 2013-14.

The state-owned commercial banks, which give out a big portion of the term loans every year, also saw their disbursement figures drop in the first half of fiscal 2013-14.

A central bank official, however, tipped the term credit figures to soar in the next six months owing to the stable political situation, while citing the 63 percent rise in the openings of Letter of Credit account for capital machinery import in the first half as a sign of things to come.

Meanwhile, the banks’ disbursement of working capital loans shot up 18.46 percent year-on-year to Tk 58,790 crore during the July-December period.

A central bank official said many firms could not do business properly due to the political turmoil, which caused a day-to-day cash crunch to the businesses.

Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh, however, said the loans taken in the name of working capital might be flowing to other unintended areas like stockmarket or being used for non-economic purposes.

“Unlike term loans, you can’t track this sort of capital. If you look at the opening of letters of credit you will see that the imports of raw materials have fallen. So the increase in the working capital is conflicting,” he told The Daily Star.

The former economist of the International Monetary Fund urged banks to be careful about the rise in lending to small-scale business since they pose serious risks to the banks.

“These are push loans as banks went to aggressive lending because they are sitting on huge liquidity.”

He said the quality of credits has fallen in the last four to five years, and might fall further in the coming months as many might fail to repay the loans.