Industrial term loan disbursements rose marginally in January- March period compared with those in the same period last year, driven mainly by high dollar rates.
Banks disbursed industrial term loans worth Tk 22,015 crore in January-March, increasing from Tk 20,907 crore in the same period last year, according to Bangladesh Bank data.
Bankers said that the growth in industrial loans was due to the rise in the dollar rate on the formal and informal market.
The dollar rate surged to Tk 120 in July from Tk 110 in December 2023 and Tk 99 in December 2022.
The higher dollar rate has made imported goods and raw materials more expensive when priced in local currency, prompting industries that rely heavily on imports to seek additional financing to cover the high expenses.
Additionally, companies with existing dollar-denominated loans faced higher repayment costs due to the depreciation of the local currency.
To manage this exchange rate risk, many businesses refinanced their loans in local currency, leading to an increase in local currency loan disbursements.
Industrial credit, for both term and working capital, advanced to Tk 5,62,344 crore in the 2022-23 financial year from that of Tk 4,81,517 crore in FY22.
However, overall loan disbursement growth was constrained by severe liquidity crisis in banks, high non-performing loans, dollar shortages, high inflation and other economic challenges.
Industrial term loans declined by 34.8 per cent to Tk 22,015 crore in January- March period compared with that of Tk 33,763 crore in October- December period of 2023.
Besides, the lending rate gradually surged to near 15 per cent now from 12 per cent in March and 10 per cent in December 2023.
The relatively high cost of borrowing made local currency loans more expensive for businesses.
Private sector credit growth also reached 10.13 per cent in July, reflecting the current challenging economic environment.
Additionally, the opening and settlement of letters of credit for importing capital machinery and industrial raw materials dropped in FY24 compared with that of FY23.
LC settlements for industrial raw materials dropped by 15.9 per cent in FY24.
Moreover, total recovery of industrial term loans increased by 31 per cent to Tk 23,468 crore in the January-March period of FY24, from Tk 17,899 crore in the same period of FY23.
However, total outstanding industrial term loans surged to Tk 4,28,079 crore in January-March period from that of Tk 3,83,075 crore in the same period last year.
Economists noted that the current economic downturn, characterised by high inflation, local currency depreciation, dollar shortages and an energy crisis, had put immense pressure on businesses, leading to reduced revenue and cash flow and could make it challenging for them to meet their loan repayment obligations.
