Lending dismal under second stimulus package
Banks in Bangladesh are less keen on giving out loans under the second round of stimulus packages as many clients are in trouble to pay off their current debts, a development that may hurt the economic recovery.
Lenders are also cautious in lending as the central bank has beefed up monitoring on how stimulus funds are being used.
Banks disbursed only 9 per cent of Tk 20,000 crore among the borrowers of the cottage, micro, small and medium enterprises (CMSMEs) between July and October, according to data from the Bangladesh Bank.
Bankers say a large number of clients have recently sought the renewal of their current loans taken from the stimulus packages as they are unable to pay instalments due to the ongoing business slowdown.
Similarly, banks are also reluctant to disburse loans to the borrowers of large industries and service units.
In the first four months of the current fiscal year, banks disbursed 14.6 per cent against the central bank's allocation of Tk 33,000 crore for the sector. The repayment tenure of the loans, disbursed in the form of working capital, under the two packages is one year.
The business slowdown is still hammering the economy despite the sharp declines in coronavirus infections. As a result, borrowers can't repay loans on time.
But Syed Mahbubur Rahman, managing director of Mutual Trust Bank, thinks: "There is no way but to provide the loan renewal facility to clients for the sake of the business sector."
The disbursement rate of the stimulus loans aimed at large and CMSME borrowers was 81.7 per cent and 77 per cent, respectively, in the first round, which was implemented from May last year to June this year.
The two stimulus packages collectively received Tk 60,000 crore in the first round and Tk 53,000 crore in the second phase.
The interest rate on the stimulus loans is 9 per cent, with large borrowers accessing funds at 4.50 per cent and the firms in the CMSME sector at 4 per cent. The government is giving subsidies to implement the packages.
Mutual Trust Bank's Rahman said banks had lent to their best clients in the first phase, but many of them were now unable to pay instalments.
"Against the backdrop, it is difficult for banks to select new clients as the old ones are struggling."
The dismal lending scenario prompted a majority of lenders to inform the central bank in the first week of October about the difficulty in disbursing fresh loans to CMSMEs. On October 20, the central bank, however, ordered the banks to lift the disbursement rate to at least 50 per cent by December.
"The demand for loan renewal from the clients has discouraged banks from disbursing loans from other stimulus programmes as well," Rahman said.
In another discouraging development, default loans in the banking sector have been on the rise, handing a blow to lenders to give fresh funds.
On September 14, the central bank also unveiled the second round of stimulus funds amounting to Tk 3,000 crore for the farm sector. It is yet to avail any information linked to loan disbursement under the package.
In the first phase, the sector got a stimulus fund of Tk 5,000 crore, of which 85 per cent was disbursed between April last year and June this year.
Rahman said: "It is difficult for private banks to provide farm loans directly to clients as they usually lend through microfinance institutions."
In April last year, the BB unveiled another refinance scheme worth Tk 3,000 crore, a revolving fund for three years, for the marginalised groups to help them survive amidst the pandemic.
But, banks are yet to implement it fully: 77 per cent of the fund has been given out so far.
Banks also displayed a disappointing performance to materialise the pre-shipment refinance scheme as they disbursed only 8.57 per cent of Tk 5,000 crore. The central bank announced the three-year scheme last year.
Md Abdus Salam Azad, managing director of Janata Bank, says banks are a bit cautious in giving new loans as many clients are struggling to repay.
He, however, expressed hopes that demand for loans would increase as the economy was getting back its tempo.
Mirza Elias Uddin Ahmed, managing director of Jamuna Bank, said that the economy was still facing a slowdown, so demand for loans had not picked up.
Since the inception of the pandemic, the central bank has rolled out 10 stimulus packages involving Tk 160,000 crore.
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