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The government should provide credit guarantee to banks for sharing the risk of disbursing loans to all cottage, micro, small and medium enterprises (CMSMEs) under the stimulus package, said a senior banker on Saturday evening.
He said, "The funds from the stimulus package, declared by the government, have been distributed through the banking channel while both credit and collection risks will lie with the banks."
"In terms of financing CMSMEs, credit risk is even higher as most clients are unknown to banks," said Mutual Trust Bank managing director and CEO Syed Mahbubur Rahman.
Earlier, the Bangladesh Bank (BB) approved a policy on Credit Guarantee Scheme (CGS) for the first time aiming to expedite financing in the country's cottage, micro and small (CMS) enterprises, leaving out the medium enterprises.
The initial fund size under the CGS has been fixed at Tk 20 billion which will allow the central bank to provide guarantee worth Tk 83.20 billion to the scheduled banks.
He made the observations as the chief guest at a BMCCI Web Talk Series styled 'Pandemic and Banking in Bangladesh' hosted by Bangladesh-Malaysia Chamber of Commerce and Industry (BMCCI).
Mr Rahman spoke at the event chaired by BMCCI president Raquib Mohammad Fakhrul. BMCCI secretary general Mahbubul Alam, treasurer Syed Moinuddin Ahmed, among others, attended.
The approval of CGS was given at a meeting of the BB's board of directors, held at its headquarters in Dhaka on Thursday, with BB Governor Fazle Kabir in the chair, BB spokesperson and executive director (ED) Md. Serajul Islam told the FE on Thursday.
A credit guarantee scheme provides third-party credit risk mitigation to lenders through the absorption of a portion of the lender's losses on the loans made to CMS in case of default, typically in return for a fee.
Speaking at the BMCCI Web Talk, Mr Rahman said the government has so far announced 19 stimulus packages worth of over Tk 1.03 trillion ($12.28 billion) or 3.7 per cent of the GDP, of which CMSMEs will get Tk 200 billion. Nearly Tk 852.50 billion will be disbursed through banks which will create huge pressure on the already ailing banking sector of the country, he added.
Even before the pandemic, banks have been struggling with non-performing loans, restructuring, declining margins in a capped interest rate and a downfall in various efficiency indicators, he mentioned.
The MTB CEO further said that the banking sector will face liquidity pressure as deposit growth and loan recovery declined as a result of the pandemic.
"The central bank has been pressuring private banks to disburse loans under stimulus package to CMSMEs by August this year, though banks haven't received much applications from small entrepreneurs."
Domestic demand has declined while small businesses could not sell their products before the pandemic, Mr Rahman said, adding: "In such a situation, banks are in a dilemma about CMSME financing while there is no credit risk guarantee from the government."
While the overall NPL in banking sector is around 10 per cent, that in CMSMEs is 12 to 14 per cent and nearly 20-per cent borrowers in the sector are defaulters, he cited.
However, the banker said if the banks maintain internal credit risk rating system to disburse loans, over 90 per cent of all types of borrowers will not get any loans.
The banks have also seen a 50-per cent rise in overdue credit card bills in recent months during the pandemic, he informed.
The operating profit of all 59 banks will be reduced by Tk 100 billion while the profit was Tk 250 billion last year, Mr Rahman said.
BMCCI secretary Mr Alam said manufacturers need to diversify their product basket to recover from pandemic losses and find new and changed markets.
To this effect, he said, additional funds will be needed.
He said export-oriented industries are not going benefitted that much from 9.0-per cent lending rate as their key concern is about exchange rate in the post-Covid world.
Responding to his concern, the MTB CEO said exchange rate will not fluctuate that much in near future because of good forex reserve and remittance inflow.