Editorial
3 years ago

Addressing the issue of long-term financing

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It is natural for businesses to seek cheap and easy money to run their existing units and establish new ones. The longing for the same has gone a few notches up now because of the losses they have suffered due to the Covid-19 pandemic. Traders, industrialists and relevant others during a face-to-face meeting with the country's top bankers, held under the auspices of the Federation of Bangladesh Chambers and Commerce of Industry (FBCCI) on Thursday in Dhaka, placed their banking needs under the prevailing circumstances.

The proposals, among others, included (a) longer time to repay the instalments of stimulus package loans; (b) 15-year term loan for industries; (c) term loan of longer duration for SMEs; and (d) sanctioning of loans based on transactions record. But the things are not that easy for the bankers who have to deal with lots of challenges, the huge burden of non-performing loans being at the top of the list.

What the country badly needs is industrialisation, and it is none, but the private sector can meet that demand. Businesses have always raised the non-availability of long-term funds essential for carrying forward the industrialization process. Banks, the major source of financing, have, from time to time, expressed their inability to finance the projects of a long gestation period since they do not have long-term deposits. The capital market and the development-financing institutions (DFIs) remain the major providers of long-term industrial financing. Both the areas, however, are yet to be explored adequately for a variety of reasons. The lone state-owned DFI has a shallow base and the private entrepreneurs are not much interested in the capital market for mopping up funds. 

Despite all the flaws and problems in the country's financial market, what remains important for economic growth is the private sector investment at a healthy rate. That is the area where the problem lies. Against the annual targets between 14 and 16 per cent, the private sector credit growth has remained as low as 7.0 per cent to 8.5 per cent in recent years. Bankers are now blaming the cap on lending rate at 9.0 per cent for poor disbursement of credit to the private sector. That may be partially true. But the private sector credit growth had been well below the targets even before imposing a cap on lending or deposit rates.

It, however, goes without saying that administered rates on deposits and lending distort the financial market. The recent decision of the Bangladesh Bank to fix term deposit rates keeping in view the rate of inflation has made the rate cap even more redundant. The rates should be market-based. It would not be, however, out of place to mention that the root cause of the problems that the banks have been facing all these years is the burden of non-performing loans. A section of sponsors of banks, bankers and businesses make the NPL burden almost unsustainable for the financial institutions.

The honest section of businesspeople has been suffering because of a handful of large borrowers who have defaulted on loan repayment. Bankers have no other option but to be diligent and cautious while sanctioning new loans. It is time for good business people to identify the delinquent borrowers and boycott them collectively. The latter deserve social and economic ostracism.   

 

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