Industrial loan increases by Tk1 lakh crore in 2022 amid crisis

Industrial loans in 2022 amid the Ukraine-Russia war and the liquidity crisis in the banking sector have increased by Tk1 lakh crore due to the increase in import cost of raw materials, capital equipment and low interest rates on bank loans.

According to a report of the Central Bank, the banks have disbursed Tk5,31,000 crore loans to the sector in 2022, while in 2021 the figure was Tk4,29,000 crore. In other words, the loan amount has increased by Tk1,01,321 crore.

Bankers say prices of all products including oil and gas have increased significantly since February last year after the Russia-Ukraine war began. The price of a dollar against the taka increased by at least 25% over the last year, due to which the overall industrial loan has increased.

Since August 2022, private sector credit growth has been slowing as imports dropped. In February 2023, private sector credit growth was 12.14%, which was the lowest in 11 months. While the private sector credit growth has declined, industrial sector credit growth increased.

Jamuna Bank Managing Director Mirza Elias Uddin Ahmed said, "Since Covid, we have had an easy monetary policy. Besides, due to low interest on loans, the growth of loans to the industrial sector has increased."

He said imports decreased throughout the fiscal 2022-23, but the credit growth kept increasing due to an increase in the prices of goods as additional import bills had to be paid.

"Consumers are buying foreign currency at higher prices to pay the import bills and the amount of loans from banks has increased," he said.

According to a report by the Bangladesh Bank, the average price of eight essential commodities increased by – coal 285%, petroleum 300%, iron and steel 20%, soybean 76%, wheat 63%, sugar 100%, fertiliser 75%, cotton 68% in January 2023 compared to January 2020. On average, the prices increased by 77%.

Total imports in 2020-21 and 2021-22 were $54.40 billion and $78.95 billion respectively. That is, during this period imports increased by $24.55 billion.

Some 46% of the imports were essential goods which cost $23.05 billion in FY21, while the same amount of goods cost $44.25 billion in FY22, meaning an additional cost of $19.25 billion due to increased prices.

Mirza Elias Uddin Ahmed said that the import of capital machinery has decreased a lot.

"As the production of garments has decreased, the imports have decreased significantly. In the current fiscal year 2023, the amount of industrial loans will decrease," he said.

The Bangladesh Bank data says the central bank had to sell 7.67 billion US dollars in the 2021-22 fiscal year. Besides, the central bank had sold more than 11 billion in the current fiscal year 2022-23. As a result, additional import charges have increased and customers have spent more than Tk2 lakh crore while paying more than $19 billion.

Meanwhile, according to the industrial loan report, the total outstanding loan amount in the industrial sector is Tk7,30,000 crore. Out of this, defaulted loans amount to 12.83%. However, as of December 2021, the sector's loan outstanding was Tk6,28,000 crore or 13.64%.

Insiders say, although industrial loans increased in 2022, it will decrease in 2023.

Officials of the industrial loan division of several banks told TBS that the central bank will increase the interest rate of loans from June. Apart from this, imports have decreased in the last few months due to which the amount of loans to industrial sector entrepreneurs will decrease.

In the first 8 months of the current fiscal year 2022-23, import LC openings have decreased by nearly $14 billion compared to the same period of the previous fiscal year.

According to the central bank data, LCs worth $45.52 billion were opened during last July-February. During the same period of the previous fiscal, LCs worth $59.46 billion were opened. This means, LC opening decreased by 23.45%.

Analysing the data of the central bank, it was found that for the import of industrial raw materials, LCs worth $6.68 billion were opened in the last 8 months compared to the same period of the previous fiscal. In this case, if the amount of these LCs increased, some Tk50,000 crores of new loans would have been created.