Industrial term loan disbursements dropped in July-September period of 2024 compared with those in the same period of previous year, driven mainly by political unrests and high dollar rates.
Banks disbursed industrial term loans worth Tk 23,116 crore in the July-September period, declining from Tk 26,194 crore in the same period of the preceding year, according to Bangladesh Bank data.
Bankers said that the industrial loan disbursements鈥� decline was due to the political unrests during the period.
Rise in the dollar rate on the formal and informal markets also weighed on the growth.
The dollar rate surged to Tk 123 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 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 of 2024 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 2024 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 7.6 per cent in November 2024, 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 7.19 per cent in FY24.
Moreover, total recovery of industrial term loans dropped to Tk 20,575 crore in the July-September period of FY25, from Tk 22,712 crore in the same period of FY24.
However, total outstanding industrial term loans surged to Tk 4,14,533 crore in July-September period from that of Tk 3,99,693 crore in the same period previous year.
Economists noted that the current economic downturn, characterised by high inflation, local currency depreciation, dollar shortages and an energy crisis, 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.
