Cheaper taka against dearer dollar, LIBOR

Private forex borrowers struggling

Aggregate offshore loans $23b, with costlier servicing liabilities

| Updated: May 20, 2022 17:11:36

Private forex borrowers struggling

Private entrepreneurs who borrowed dollar from the international market on grounds of cheaper rates of interest are now struggling to service the debts as the greenback has abruptly become expensive.

Such corporates had borrowed from overseas sources a total of US$23 billion or over 25 per cent of the country's total external debt as of last December.

Concern grows as the US dollar -- the prime global trading currency -- has appreciated sharply in recent times. The dollar exchange rate on the kerb market in Bangladesh rose unusually to Tk 102 on Tuesday. However, on Thursday the dollar prance cooled down to Tk 96.

The interbank weighted average exchange rate also has shot up by Tk 1.72 since November.

However, this rise in dollar price has been impacting public sector as well, but government borrowings are mostly concessional and on long terms. Contrarily, the private-sector loans are mainly short-term.

Of the $23 billion private borrowings, nearly 70 per cent account for short-term loans taken by the corporations as buyer's credits, on deferred payment, export discounting and foreign back-to-back letter of credits.

Over the past one decade local big companies have doubled their dollar-based debt, taking advantage of lower interest rates. This loan helps them purchase goods from the international market to be competitive on the local market.

People at the private enterprises told the FE that the depreciations of local currency have been impacting adversely as they are losing for having external dollar-denominated debts.

Mr Aameir Alihussain, managing director at the country's biggest rod producer - BSRM -- said: "We are the worst sufferer as almost all ingredients of rod are imported ones."

He notes that not only the pain of borrowing from the external sources, the prices of the raw materials are also on the rise following the dollar surges.

Mr Aameir suggests that the central bank go on the issue gradually.

Mohammad Mustafa Haider, a director at country's one of the big-name conglomerates --TK Group of Industries -- told the FE that they had preferred dollar-denominated foreign loans as they need it to meet external payments for procuring raw materials.

"We're now losing," rues Mr Haider.

To justify offshore borrowing he points out that dollar-denominated debt had trade benefits.

In the meantime, bankers say that the local corporate borrowers used to take the loans as they were cheaper than local band. For the time being they are losing instead of reaping gains.

Md. Shaheen Iqbal, a deputy managing director at BRAC Bank, told the FE that the borrowers who used to gain 3.0 to 4.0 per cent earlier now are losing by 4.0 to 5.0 per cent.

He argues that not only the local currency has shed value over the past six months but the LIBOR also soared significantly -- leading to debt buildup from both sides.

Many economists had offered such a cautionary tale of what could happen when a company borrows heavily in dollar. They also argued that there were many negative spillovers from such loans taken by the corporate entities.

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