The Financial Express

Cheap loans trigger worries

| Updated: August 06, 2021 21:54:37

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It is nothing unusual that the central bank has launched a probe into the alleged misuse of stimulus packages that the banks disbursed to large, medium, small and micro-enterprises to help the latter tide over the troubles created by the pandemic.

Allegations have it that a portion of the subsidised loans received under the packages has been diverted to the stock market to make a quick profit or used to repay high interest-bearing loans.

The Bangladesh Bank (BB) has asked all the scheduled banks to submit statements mentioning the names and addresses of the recipients of cheap loans and their recovery status.

Hopefully, the probe that the BB has launched would move in the right direction and reveal wrongdoing, if any, involving the stimulus money.

The diversion of bank loans by some unscrupulous borrowers is nothing new in this part of the world. Some entrepreneurs in the 1980s and 1990s had taken industrial loans and invested the same in activities other than building mills and factories. Thus, this section of borrowers had been instrumental in the transformation of the two state-owned development financing institutions (DFIs) ---the Bangladesh Shilpa Bank and the Bangladesh Shilpa Rin Sangstha--- into sick entities. The two DFIs were later merged into one and renamed the Bangladesh Development Bank Limited (BDBL). The diversion of the fund is still on in the case of scheduled banks. But there has is no data on this issue. So, it is really difficult to say that if a part of the stimulus money has not sneaked into areas other than the designated ones. Since the loans are cheap and supervision is not rigorous during the Covid time, such diversion is very much a likely development.

For instance, the readymade garment units have received a sizeable amount of cheap loans. The banks, under instruction from the central bank, offered loans to the RMG units to pay wages and other benefits to their workers. Yet the Clean Clothes Campaign (CCC), garment's largest alliance of workers' unions and non-governmental organisations, has estimated that Bangladesh apparel units owe more than $840 million in arrear wages and severance pay to their workers since the beginning of the pandemic. The RMG units have received in full the two stimulus packages until now. This particular industry is the recipient of the maximum possible financial benefit from the government. 

The state of affairs with bank credit in Bangladesh has not been that satisfactory. The accumulation of huge default loans---nearly one trillion taka ---remains a testimony to that fact. Many banks, both in the private and public sectors, are in difficulty because of their huge load of classified loans. It is feared that loans given under the stimulus packages might make the situation even worse for them.

In the case of diversion of funds, there could be several destinations. The stock market remains a potential one. Unless and until a thorough probe is done, it is difficult to say whether cheap stimulus money has been invested in stocks or not.

The stock market is unusually buoyant during this period of economic hardship. True, people are finding no rewarding place for putting in their savings these days. The same situation prevailed during the pre-pandemic days. Yet people did not rush to bourses then. Why is it now?

Only a small portion of the funds whitened during the last financial year was invested in stocks. But that is not enough to trigger the buoyancy now being observed in the stock market. Funds from other sources have surely flowed in. It is very unlikely that the securities regulator or any other regulator will be interested to dig into that.

The outcome of the central bank's probe into the alleged abuse of the stimulus package remains very much clouded given the stance made public by some men in authority on the issue.

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