Industrial loans fall by Tk18,000cr in three months

Industrial loans declined by Tk18,000 crore in the first three months of this year due to a slowdown in global economic recovery, ongoing political uncertainty, and lower imports of raw materials and capital machinery.

According to data from the central bank, businesses in the industrial sector received Tk1.31 lakh crore from banks and financial institutions in the January-March quarter, which is a decline from the Tk1.49 lakh crore in the previous three months.

Bankers say higher global prices of essential commodities, such as fuel oil and gas, along with a strong dollar, have led to an increase in import costs.

In addition, production has seen a significant drop due to industries being unable to import raw materials owing to the dollar shortage. It has resulted in a decline in loan disbursements in the industrial sector.

Central bank officials say sluggish global economic growth, increasing interest rates on both domestic and foreign loans, and inflation have significantly hindered industrial production. Consequently, there has been a notable reduction in demand for industrial credit.

They also said central banks around the world are using similar strategies to combat cost-of-living increases. The central banks of major economies have raised rates to curb inflation. These rate hikes, which increase borrowing costs for many kinds of loans, are meant to slow down economies and reduce demand for goods and services.

Following the Covid pandemic, economic activity in the country picked up, leading to a significant rise in the demand for industrial loans. Although industrial loan disbursements increased due to supply chain disruptions and rising import costs as a result of the Ukraine-Russia war, production did not increase because of a global economic slowdown.

Mesbah Uddin Khan, managing director of Windy Group, attributed the decline in industrial loans to several factors, such as global market turmoil, high energy and dollar prices and an increase in bank interest rates.

"In addition, some banks are facing liquidity crises. On the other hand, investments have declined as businesses are cautious about new investments in the election year," he told The Business Standard.

According to data from the central bank, the import of raw materials and capital machinery has dropped significantly in the last financial year.

The opening of letters of credit and settlements decreased by 31% and 6.68%, respectively, in the first nine months of the last fiscal year.

Import of textile fabrics, pharmaceutical raw materials, raw cotton, cotton yarn, copra, synthetic fibre and yarn has dropped by about 30% to 70%. In addition, LC opening and settlement for the imports of capital machinery in the July-March period decreased by 55.88% and 14.93%, respectively.

Syed Mahbubur Rahman, managing director at Mutual Trust Bank, told TBS, "One of the reasons for the decline in investment is the decrease in LC openings for import of capital machinery and raw materials."

"Liquidity in banks is under a lot of pressure. Besides, businessmen are thinking about investments based on the global economy slowdown and the ongoing environment in the country. Due to this, investment is decreasing," he added.

The managing director at another private bank told TBS the central bank has lowered the private sector loan target to rein in inflation. Like other countries, Bangladesh has also increased the policy rate, due to which the amount of credit in this sector is decreasing.

Last June, the central bank announced its monetary policy for the first half of fiscal 2023-24, adopting a contractionary monetary policy stance, tightening money flow to the private sector, and lowering the private sector credit growth projection to 11% from 14.1% set for FY23.

Private sector credit growth continued to decline for the seventh consecutive month, with a year-on-year growth rate of 10.49% this June – the lowest in 19 months.

In July, inflation stood at 9.69%, which was 7.48% in the same month a year ago. Inflation was 9.94% in May – the highest in 11 years and two months.

Industrial overdue loans rise by 20% in 3 months

According to the central bank report, the amount of overdue loans in the industrial sector rose by 20% in the first three months of this year.

Data from the central bank revealed a concerning trend, with the amount of overdue loans in the industrial sector reaching a new high of Tk1,12,003 crore by the end of March 2023, up from Tk93,813 crore in December 2022.

The overdue loan amount indicates a debt that has passed its due date, meaning it should have been repaid by a certain time, but has not been paid yet.

Industrial loans soar in 2022 due to an import cost rise 

According to a central bank report, banks disbursed Tk5.31 lakh crore to the industrial sector in 2022, which is an increase of Tk101,321 crore compared to the previous year.

Since August 2022, private sector credit growth has been slowing as imports have declined. Private sector credit growth was 12.14% in February 2023, the lowest in the last 11 months. Although private sector credit growth has declined, a reverse picture has been seen in industrial sector credit growth.

According to a central bank report, when compared to January 2020, average price increases for eight types of commodities in January 2023 were as follows: 285% for coal, 300% for petroleum, 20% for iron and steel, 76% for soybean, 63% for wheat, 100% for sugar, 75% for fertiliser, and 68% for cotton. The price increase was 77% on average.