Industrial loan disbursements increased slightly by 10 per cent in the first half of the 2023-24 financial year compared with those in the same period of FY聽2022-23, driven mainly by high dollar rates.
Banks and non-bank financial institutions together disbursed industrial loan of Tk 3,09,503 crore in July-December 2023, up from Tk 2,80,934 crore in the same period of FY23, according to the Bangladesh Economic Review.
Within the reporting period, industrial term loans amounted to Tk 59,957 crore and working capital loans totalled Tk 2,49,546 crore, up from Tk 48,136 crore and Tk 2,32,798 crore, respectively, in the same period of FY23.
Bankers attributed the growth in industrial loans to the sharp rise in the dollar rate, which increased by 11.11 per cent to Tk 110 in December 2023 from 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 face higher repayment costs due to the depreciation of the local currency. To manage this exchange rate risk, many businesses have refinanced their loans in local currency, leading to an increase in local currency loan disbursements.
Despite the Bangladesh Bank lifting 9 per cent lending rate cap on July 1, 2023 and introducing the Six-Month Moving Average Rate of Treasury Bill, also called SMART, interest rate determination system, the weighted average lending rate was 9.36 per cent in December 2023.
The relatively low cost of borrowing made local currency loans attractive to businesses.
Industrial loan disbursements advanced to Tk 5,62,344 crore in FY23 from Tk 4,81,517 crore in FY22.
However, overall loan disbursement growth was constrained by severe liquidity crises in banks, high non-performing loans, dollar shortages, high inflation and other economic challenges.
Consequently, the 10 per cent growth in industrial loans in the first half of FY24 was significantly lower than the 21 per cent and 18.46 per cent growth rates observed in the same periods of FY22 and FY21, respectively.
Private sector credit growth also plunged to 10.13 per cent in December 2023, down from nearly 14 per cent in November 2022, 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 the first half of FY24 compared to the same period of FY23.
LC openings for industrial raw materials fell by 10 per cent, while settlements declined by 31 per cent.
Moreover, total recovery of industrial loans decreased by 9.3 per cent to Tk 2,34,765 crore in the July-December period of FY24, from Tk 2,58,811 crore in the same period of FY23.
Economists noted that the current economic downturn, characterised by high inflation, local currency depreciation, dollar shortages and an energy crisis, has put immense pressure on businesses, leading to reduced revenue and cash flow and making it challenging for them to meet their loan repayment obligations.