‘If BB provides support in terms of liquidity, banks and businesses will both benefit’

The country's financial institutions and the RMG industry are under a lot of financial pressure as they attempt to mitigate the difficult issues created by the pandemic. 
 
At present, the BGMEA is demanding the loan rescheduling facility to be extended for another year, which can be a big challenge for the banks. If the government acquiesces their demand, what would be the impact of it on the banks, on the market and on the economy? And why is the  BGMEA asking for this facility at this time? 
 
Shahidullah Azim, Vice President of BGMEA and Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank and former president of Association of Bankers, Bangladesh (ABB) discussed these pressing issues with The Business Standard.
 
Inam Ahmed: First, tell us about the logic behind the demand for a loan rescheduling facility. Why have you demanded this? You are also demanding an extension of the repayment period of the stimulus package for salaries from 18 months to 36 months. Please tell us more about these.
 
Shahidul Azim: As you know, in 2020, we did not have any business due to the pandemic. Our exports decreased by about $6 billion, coming down to $28 billion from $34 billion. We are getting orders now but it does not mean that we are getting the money right now. The money we received will become cash after four to six months. That is why we demanded these facilities. It would reduce the size of the instalments. We would later repay the money from our export profits. In a nutshell, as we did not have any business in the previous year, we demanded the facilities as help.
 
Inam: But right now, you are getting many orders. You can execute these orders with your running capital. Then why are you asking for a loan rescheduling facility?
 
Azim: It is true that we are getting many orders. It is good for rebounding after the crisis of the pandemic. However, we will not get any money before executing the orders. But we have to pay the instalments. If the size of the instalments is decreased, it would help the factories. They would not miss any instalments. Otherwise, there is a risk that many instalments will not be realised.
 
Inam: This situation is also applicable for other industries of the country. Is it necessary to provide these facilities only to your sector? Or do other sectors also deserve this?
 
Azim: Bangladesh Bank and the finance ministry will decide this. I can only say that our sector needs the facilities. You should not compare the RMG sector with others because we earn 84 percent of the foreign currencies. However, if other sectors are given these facilities, we do not mind.
 
Inam: Syed Mahbubur Rahman, there is already a concern in the banking sector over the repayment of the stimulus package. In this situation, how do you see the loan rescheduling extension proposal?
 
Syed Mahbubur Rahman: What Shahidul Azam said is very logical. But everybody has a certain capacity. There was enough liquidity in the market a few months ago. But the government has started to take back the money. 
 
On the other hand, Bangladesh Bank used to buy dollars from the market. But now the government is injecting dollars into the market. Through this process, the net cash in the market is getting dried up. The repayment of stimulus loans has started from August. Bangladesh Bank has already debited around Tk170 crore from my bank. But I have not got the money from the customers yet. This is pressure for my bank. 
 
Many other banks are feeling such pressure. Mainly, the problem is with the capacities of the banks. Bangladesh Bank has set new targets for banks to finance large manufacturers and SMEs. We have to disburse these targets. On the one hand, I am not getting funds and on the other hand, a bank like ours has to disburse around Tk1,000 crore. Maybe 30 percent or even more parts of the money will not come back to us. This is where our limitation is. 
 
Bangladesh Bank said that the refinancing scheme will have a time period of one year. Now, we can give that time. But if we want to extend it, we have to go to the Bangladesh Bank. 
 
In any case, you know that the deposit of most of the banks is for three months. The deposit of more than 50-60 percent is for three months, the others are for six months, nine months or for one year. That is why it will cause a huge problem in cash management. 
 
Azim: I understand the position of Mahbubur Rahman. But I read in the news that currently, the liquidity in banks is very high. So high that they are not finding enough opportunities for investment. What I can say on behalf of the businessmen is that we are not saying that we would not repay the money. Of course, we will. But we need a little more time. 
 
Now, it is hard for me to run with the working capital, paying the salaries of workers, and continuing production. Once the money will start to flow in, these problems will be no more. 
 
Rahman: I have no doubt that the real businessmen will repay the money. The problem is our limitations. Yes, there is some liquidity in the market. But most of that is in the government banks and in the Islamic banks. So, we want to help but that must be within our limitations.
 
Inam: The BGMEA said that they are getting orders but right now not getting the money. So, they have demanded a rescheduling extension. On the other hand, the banks have many limitations. There is also fear that some repayment can stay unrealised. What can be the solution?
 
Rahman: We have been continuously working with our customers. However, the EDF is being extended. And in export, everything is very clear about how much liabilities you have against what amount of export. If Bangladesh Bank gives us some support in terms of liquidity, it would help both of us - the banks and the businessmen.
 
Azim: That is correct. If Bangladesh Bank makes the policy on the basis of this, then there would be no pressure on you. We met with the governor yesterday. We discussed the issues with him.
 
Rahman: Yes, we need policy support. Then we would have no problem.
 
Inam: Azim Bhai, tell us about the export orders that you are getting right now.
 
Azim: Many orders have shifted towards Bangladesh due to military rule in Myanmar in recent months. We have also gotten some orders due to the lockdown in India. The amount of orders is 20-25 percent more than our capacity. 
 
Inam: How is the price?
 
Azim: Not very good. But as there are many orders, we can choose which one we will take and which one we will cancel. So, we are learning to say no. We have told all the manufacturers that if you do not agree with the price, try to say no. Right now, there is no other option for the buyers, they have to come to Bangladesh. We need to set a price benchmark.
 
Inam: One thing we can see is that the market for the RMG sector is good, right now. Good garment factories have good relationships with banks and they are ready to repay the money. But currently, they are facing a temporary cash crunch. On the other hand, banks are also sympathetic to businessmen. They want to give money to them. But the problem is there is a liquidity crisis for which Bangladesh Bank has to come forward. 
 
Rahman: Right. We need policy support for that. We have many problems. We do not want to have more problems. We need to solve the crisis together with cooperation among the banks, businessmen and the central bank.
 
Azim: Exactly, this was the same message we conveyed to the governor of the Bangladesh Bank yesterday.
 
Inam: Mahbub Bhai, I want to ask you a question. Bangladesh Bank debited from your bank around Tk175 crore before you got that from your customers. This puts pressure on your bank. In this situation, what do you foresee in terms of the condition of the banking sector in the next year?
 
Rahman: Bangladesh Bank has debited money that way from many banks. The pressure depends on the performance of the banks. If we see a surge in virus infection again, like in India and the USA with the number of cases rising, we may impose lockdown again. 
 
We have already seen that many SMEs have closed their business. So, if our customers face problems, that will also affect us. What I can say is that we have to struggle a bit next year. We will try to handle the situation by rescheduling and other measures. But we need policy support from the central bank. 
 
Azim: I want to give some good news - in the last seven months we have surpassed Vietnam in RMG exports. They exported $17 billion and we exported $19 billion. If everything goes well, I think we would go ahead of Vietnam by $4-5 billion.
 
Rahman: We have the capacity to do that. We want to go hand in hand with our clients in future.
 
Inam Ahmed: We will end our discussion here keeping this optimism in mind. Thanks to both of you for joining us.