Falling industrial loan disbursement hits investment, employment

Loan disbursement in the industrial sector has declined as entrepreneurs are reluctant to set up new factories or expand existing ones due to the ongoing pandemic.

Compared to 2019, the distribution of loans in the industrial sector decreased by about 10% last year.

In 2020, a little more than Tk1 lakh crore was disbursed, which was Tk1,11,000 crore in 2019, according to an updated report on loans in the industrial sector published by the central bank on Sunday.

In the industrial sector, two types of loans are disbursed as term and working capital. Working capital loans are taken for short term (one year or two years) to continue production and cover all expenses. The amount of these loans disbursed in the industrial sector is the highest, about 70% of the total loans disbursed.

Due to the impact of corona pandemic last year, many factories could not go for production during the first half of the year. However, some factories went into production in the second half of the year.

As a result, the rate of decline in working capital loan disbursements at the end of 2020 was slightly lower than that of term loan disbursements. Compared to 2019, the working capital loan disbursement decreased by about 4% last year. On the other hand, the disbursement of term loans decreased by about 32%.

In 2020, around Tk16,000 crore term loans were disbursed, which was over Tk24,000 crore in 2019.

Long-term loans are usually taken for setting up new factories or expanding existing businesses. So, these loans have a direct role in creating new employment.

Compared to the third quarter of last year (July-September), the loan disbursement situation improved in the last quarter (October-December).

At the end of last quarter in December, the amount of disbursed loans in the industrial sector increased by about 6%, compared to the end of the third quarter in September. During the time, working capital loan disbursement increased by 5.85% while term loan disbursement increased by 6.75%.

In this regard, economist Ahsan H Mansoor told The Business Standard that the demand for loan in the industrial sector was low due to lack of investment and declining production. Entrepreneurs are unable to make investment decisions in an uncertain environment of the pandemic.

Regarding the slight increase in loan disbursement in December as compared to September, he said demand has increased slightly after some factories went into production at the end of the year getting the incentive packages. "However, it will take long to go to the previous stage," he said.

The economist said term loans in the industrial sector play a key role in creating employment. This reduction in loan disbursement means that new industries are not being created and employment is not increasing.

"On the other hand, young people are not able to go abroad in search of work. Again there is going to be a fourth industrial revolution in the industrial sector. It has posed a big challenge for the job seekers. This may lead to social dissatisfaction after the pandemic," he said.

"Since there was an advantage of not repaying the loan installments throughout the last year, the traders were not under pressure. However, loans of those who paid have been adjusted," he continued.

During the corona pandemic, industrialists repaid Tk92,716 crore loans at the end of December last year, up 3.68% from the previous year.

Although the loan classification due to non-payment of loan installments was halted, the number of defaulters was negligible last year. In 2020, the industry has defaulted on Tk287 crore loans. Of this, Tk252 crore is term industrial loan and the rest is other loans.