The volume of buyers' credit jumped by over 20 per cent in the first half (H1) of this calendar year as importers excessively bank on such cheaper foreign-currency loans.
Sources said a section of businesses are deviating from the legal sanction for machinery and industrial raw-material imports with this dollar-denominated lower-interest credit facility and importing other items, too.
The total outstanding amount of the foreign-currency loans in the country's banking sector rose to $6.52 billion in June 2017 from $5.41 billion six months before, according to the central bank's latest statistics.
The fresh disbursement of usance-bill payments at sight - generally known as UPAS - rose by 4.41 per cent or $1.11 billion in June from $1.07 billion in January 2017.
On the other hand, the payments against the loans by the importers dropped by more than 18 per cent to $764.48 million as on June 30 this year from $1.02 billion in January.
"Such loans have become popular gradually mainly due to lower interest rates, offered by the local banks or overseas sources concerned," a senior official of the Bangladesh Bank (BB) told the FE while explaining the main reason behind the popularity of the credit.
The loans are being received in foreign currency from overseas sources on the basis of local bank guarantees mostly at an interest rate ranging between 3.50 per and 6.00 per cent.
"But most loans are being sanctioned at lending rates hovering between 4.00 per cent and 5.00 per cent," the central banker noted.
He, however, warned that the effective interest rate on the buyer's credits will increase if the local currency, Bangladesh Taka (BDT), depreciates against the US dollar (US$) in future.
The BDT has already depreciated by nearly 2.0 per cent against the US currency during last six months due to higher demand for the greenback in the market.
Monthly average closing rate of the US dollar stood at Tk 80.60 on the inter-bank forex market in June last against Tk 79.07 in January this calendar year, the BB data showed. It was Tk 79.70 in August 2017.
"The depreciating mode of BDT against the US dollar may continue in the coming months due to higher demand for the greenback in the market for settlement of import-payment obligations," a senior treasury official of a leading private commercial bank hinted.
He also said higher import of food-grains, particularly rice, may also push up the demand for the dollar in the near future.
Echoing the BB official's views, Shafiqul Alam, managing director of Jamuna Bank Limited, said buyers' credit is becoming popular gradually mainly due to lower interest rates thereon.
"It's good for the overall development of the economy," the senior banker said, adding that it also helps in improving productivity in the economy.
The businessmen are now allowed to avail buyers' credit to import capital machinery and industrial raw materials in line with the BB directives, he said.
Banking-insiders, however, said some importers are taking advantage of such low-cost loan for importing other commodities instead of the capital machinery and industrial raw materials.
When contacted, another BB official told the FE that they had already been informed about such misuse of the loans. "We're looking into the matter."
He also said the central bank is allowing such credit to achieve maximum economic growth through expediting the ongoing industrialisation process in Bangladesh.
Such short-term credit also helped in reduction of interest rates on lending in local banking system in the recent months, according to the central banker.
The weighted average interest rates on lending came down to 9.56 per cent in June 2017 from 9.84 per cent six months before. It was 11.05 per cent in January 2016.
Talking to the FE, Abdus Salam Murshedy, managing director of Envoy Group, said such low-cost foreign-currency loans are encouraging entrepreneurs to set up new plants that help accelerate industrialisation of the country.
"Only eligible entrepreneurs are allowed to use such loans so that the amount overdue on the credit is still negligible," noted Mr. Murshedy, also president of the Bangladesh Exporters Association.
The overall overdue buyers' credits came down to $5.24 million in June 2017 from $11.02 million six months before, the BB data showed.