Business slows down

High bank interest rates and ongoing political violence have caused a slowdown in private sector activities and pushed up business costs significantly.
In order to survive, a business now needs to make a whopping 30 percent profit that will cover bank interest rate of 18 percent and the operating costs, said a number of entrepreneurs.
The current situation has forced many businesses to refrain from making any new investments. And it has hit the banks hard with borrowers not even taking out their approved loans.
Average credit growth in private sector plummeted to 6.98 percent in nine months (from July to March) of the current fiscal year from 13.62 percent during the same period last year.
Banks' advance (loan) deposit ratio also went down to around 70 percent from more than 80 percent a year ago.
“High borrowing costs have become a big burden in addition to the existing gas crisis and political unrest,” said Mostofa Kamal, chairman and managing director of Meghna Group of Industries, one of the biggest conglomerates in Bangladesh with an annual turnover of $1.5 billion.
Meghna Group is unwilling to take out loans of Tk 200 crore sanctioned by a state-owned bank due to the present hostile business climate.
Energypac, a leading player in power sector, and Ifad Group, a vehicle and commodity trader, have also refrained from availing themselves of sanctioned bank loans.
Not only them, almost all businesses -- from large to small -- have been cautious about making new investments.
“It is impossible for an entrepreneur to do business with such high bank interest rate,” said Azam J Chowdhury, chairman of East Coast Group that is involved in shipping, power, banking and lubricant businesses.
Chowdhury said political turmoil is nothing new in Bangladesh, and businesses know that there would be turmoil once in every five year centring the national election. But they were not ready for such a jump in bank interest rates.
Banks are charging 16-17 percent interest rates for big clients, and even higher for small ones. Handling charges and other fees add to the interest burden. In addition to bank interests, a business has to spend on salaries of its staff, utility and office management costs.
“What will we do with high-interest loans amid the growing political uncertainties?” asked Iftekhar Ahmed Tipu, chairman of Ifad Group.
Tipu claimed he had never defaulted on bank loans, and wished not to do it ever. He is not willing to take bank loans at this moment considering the unfavourable business climate.
“You have to make profits between 28 and 30 percent, which seems impossible, to pay the banks and survive,” said Tipu.
Humayun Rashid, managing director of Energypac, also voiced similar concerns. Though the company invested heavily in power sector in the last few years, it has not recently taken any new project.
“Project costs are soaring. Banks now charge 16.5 percent, which goes up to 18 percent if payments are overdue. So, we are not taking new loans,” said Rashid.
Kamal of Meghna Group said entrepreneurs must be given facilities, otherwise they wouldn't feel encouraged to make new investments.
Chowdhury of East Coast Group demands the central bank's intervention to ease the interest burden on investors.
“The central bank should hold talks with all stakeholders to reduce the bank interest rates and create a business-friendly environment,” said Chowdhury.
SK Sur Chowdhury, deputy governor of Bangladesh Bank, is also concerned about high bank interest rates.
“If banks have enough loanable funds, the rate will automatically go down.” Latest reports show that interest rates have already fallen by 1-1.5 percent, he said.
However, the BB deputy governor said private sector credit went down because of tightening of policies and monitoring by the central bank, not for high interest rates.
“Our banks were aggressive in lending. Now they cannot play games with loans, especially with the non-funded ones,” he said.