Loans getting costlier amid cash crunch

In the last one and a half years a home loan borrower of Delta Brac Housing (DBH) has experienced a hike in his interest rate three times.

The private sector employee received a notice on the third hike just this week.

From June 1 the borrower will have to pay 11.5 percent in interest, a rise from the current 8.75 percent.

The frequent change in the interest rate means the borrower runs the risk of becoming a defaulter as the larger instalment size will put pressure on his monthly budget.

The DBH revised down the lending rate for the borrower in October from 11.5 percent to 11 percent following an ease in the liquidity condition caused by the cut in cash reserve ratio in April.

But within eight months, it revised the lending rate.

The DBH increased the lending rate by up to 1 percentage point from April as its deposit cost has surged, said QM Shariful Ala, managing director of the non-bank financial institution.

Currently, the NBFIs are paying up to 10 percent in interest to savers, but it was 7 to 8 percent several months back. The deposit rate of banks also went past 10 percent.

Most of the banks and NBFIs have revised up the lending rate by up to 1 percentage point in recent months, Shariful added.

Apart from home loans, other business loans are also becoming expensive, as the liquidity crisis is deepening amidst the Bangladesh Bank mopping up cash through sales of the dollar.

What is more, there are instances where banks could not disburse loans to clients even after giving approval.

One such clients, a business firm, received the nod for a loan of Tk 50 crore from a private commercial bank. One month went by but the fund was not released.

When the firm contacted the bank, it learned that the delay was because of the liquidity shortage.

The firm, which runs super-shops, has not been able to go ahead with its expansion plan as per schedule as it could not get the fund.

A top executive of the business firm says high interest rate is not a concern; rather, getting loan is a big challenge now.

High imports accounted for the intensification of the liquidity crisis, said Naser Ezaz Bijoy, CEO of Standard Chartered Bangladesh.

He says Bangladesh Bank was selling dollars to meet demand and it was drying up the liquidity.

But, if the BB does not sell the dollar, it will create a risk because banks will fail to make payments against letters of credit which will push up the confirmation cost, according to Bijoy.

The excess liquidity in the banking system is shrinking fast. It stood at Tk 63,900 crore in February, the first time it had come below the Tk 70,000-crore level in five years, central bank data showed.

The excess liquidity refers to the liquid deposits that commercial banks hold with the central bank in excess of minimum reserve requirements. It also includes the funds that banks invest in government bonds.

The excess liquidity had crossed the Tk 1 lakh crore-mark in 2015.

The private sector credit growth declined for the fifth consecutive month in March dipping to 12.42 percent, far below from the central bank’s target of 16.5 percent for the January-June period this year.