Growing consumer class claims substantial loans

Consumer-credit flow grows stronger, indicating rise of the consumer class in Bangladesh, outweighing central bank's diligent drive to divert loans to productive sectors.

Increasing numbers of people are now using consumer-financing schemes launched by the commercial banks to whet their appetite for cars, motorbikes, air-conditioners, refrigerators and televisions, according to officials.

The financing for consumption recipes surged by more than 35 per cent or Tk 101.65 billion during first nine months of the last calendar year following comparatively lower interest rates offered by the banks to attract more clients.

They termed the trend "overexposed" for the country's banking sector that happened at a time when Bangladesh needs increasing investment in productive sectors for achieving "inclusive" economic growth through creating employment across the country.

Scheduled banks all together lent Tk 386.66 billion, which accounts for 5.14 per cent of the total outstanding loans, for consumer goods during the period under review against Tk 285.01 billion of 2016, according to a Bangladesh Bank (BB) confidential report.

On the other hand, the overall outstanding loans grew by 18.30 per cent to Tk 7524.84 billion as on September 30 last from Tk 6360.99 billion a year before, it added.

The BB found that at least 10 banks had increased their consumer financing significantly, ranging between 10 per cent and 24 per cent, during the period in excess of the limit set by the BB earlier.

"We need boosting investment in the real sectors including manufacturing, agriculture and small and medium enterprises to achieve sustainable economic growth," a BB senior official told the FE.

He also said the central bank is now working to stem the tide of credits for consumer financing immediately.

Sources, however, said the BB has planned to impose a limit on the bank exposures against total consumer financing to discourage them from disbursing such loans.

Under the proposed limit, the exposure under consumer- financing facilities must not exceed 15 per cent of their total loan portfolios.

Besides, loan exposure under housing finance-and consumer- finance categories will not cross 10 per cent and 5.0 per cent respectively of a bank's total loan portfolio.

Senior bankers, however, said lower interest rates on consumer loans and relaxation of policies by the central bank spurred the growth in such loans in the recent months.

Rising trend in use of social media like Facebook also played its part in pushing up the financing for consumption-spurred financial activities, they added.

"The demand for consumer loans has increased following rising trend in purchasing power of people," MA Halim Chowdhury, managing director (MD) and chief executive officer (CEO) of Pubali Bank Limited, told the FE Friday while explaining the increased consumer financing.

Mr. Chowdhury also said the banks may provide such loans to their clients easily with competitively higher margins.

The banks lent to the consumers at interest rates ranging between 8.25 per cent and 18 per cent in December 2017 against 9.0-18 per cent in January last calendar year, the BB data showed.

Talking to the FE, Mashrur Arefin, additional managing director and chief communications officer of City Bank Limited, said any policy that tries to restrict the growth in consumer financing, at this stage of the country's economy in its evolutionary curve, will end up being an impediment for the banks in their efforts to diversify their portfolios traditionally concentrated on corporate lending.

"It may hurt badly the local demand and consumption which remains a key driver of the country's economic growth," the senior banker said while explaining the possible impacts on consumer financing if the policy would be changed.

He also said any drastic policy change could also put some 8,000 bankers' jobs at risk. "Also the millions of dollars worth of investments made by the banks to build the platforms for safe lending in retail area will be affected."

Earlier on April 04 the last calendar year, the central bank of Bangladesh almost doubled the limits to credit card-and personal loans under consumer financing following a rising trend in people's purchasing power.

The BB had revised the limits after 13 years, considering per-capita income as well as increase in both demand and prices for consumer goods.

Under the revised regulations, maximum unsecured limit under credit card to a borrower (supplementary cards shall be considered part of the principal borrower) shall not exceed Tk 1.0 million. It was Tk 0.50 million.

On the other hand, limits per person for personal loans were re-fixed at Tk 0.50 million instead of Tk 0.30 million without any securities.

The banks, however, are instructed to provide consumer finance such a way that, in any case, the growth rate in total loans under 'Consumer Financing' must not exceed the growth rate of banks' total loans.

Consumer finances cover personal loans, flat-purchase loans, professional loans, loans against salary, loans through credit cards, marriage loan, travelling or holiday loans.

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