Power, telecom suffer, banks gain amid dollar crisis

The business sector in Bangladesh has been going through severe challenges for the past four years, which, for many, have been the toughest period in decades, with the coronavirus pandemic being the dominant factor in the early part before the Russia-Ukraine war broke out. Today, we are running the fourth report of a series to present how various sectors fared in the face of the two unprecedented shocks.

The loss of value of Bangladeshi taka against the US dollar due to the shortage of the greenback amid the global economic turmoil has affected various industries as their cost of imports and repayment of foreign loans soared.

Financial data by listed companies showed that power generation, telecom and manufacturing companies were the main victims of the recent volatility in the dollar market.

On the other hand, banks booked higher profit through the dealing of the greenback.

Among the listed companies, fuel and power companies had to bear extra costs of Tk 1,128 crore in the June-December period of 2022 due to the depreciation of the local currency.

In the telecom sector, Grameenphone and Robi Axiata spent Tk 454 crore in 2022 for the same reason. The companies' profits had also been impacted by the extra spending incurred from the foreign exchange losses.

At a time when the manufacturers were facing the storm, the banks were making money from foreign exchange trade.

The listed banks logged an income of Tk 4,328 crore from the foreign exchange dealings in the January-September period of 2022 whereas it was Tk 1,446 crore in the same period of the previous year.

Power and fuel, steel and infrastructure companies and almost the whole manufacturing sector were impacted by the foreign exchange volatility, said Humayun Rashid, managing director and CEO of Energypac Power Generation.

Taka was depreciated by around 23 per cent from 2021's Tk 85 to Tk 105 in 2022, according to the Bangladesh Bank data.

Normally, the manufacturers import raw materials under the Usance Payable at Sight letter of credit (UPAS LC), which refers to buyers taking time to make payments on receiving goods.

So, when they went for clearing the payment after six months of opening the LC, they had to pay 20 per cent to 25 per cent more money, he said. "It affected their business directly," said Rashid.

When manufacturers were impacted for the depreciation of the local currency, banks raked in a huge amount of income/profit, maybe not through any regulatory offence, he said.

Meanwhile, the banks did not increase lines of credit, a borrowing limit that can be tapped into at any time.

So, the manufacturers have been facing problems in bringing an adequate amount of raw materials, which ultimately impacted their production capacity.

Take for instance, a manufacturer having a credit limit of up to Tk 100 can now bring lower amount of goods than before. It is because of the increased import cost resulting from the depreciation of the taka.

After the depreciation of the local currency, the manufacturer can now bring 8 kilogrammes of raw materials down from 10 kgs with the Tk 100 fund he has as the bank did not increase the line of credit, added Rashid, who is also an executive member of the Bangladesh Association of Publicly Listed Companies.

So, the manufacturers would pass the additional cost caused by the currency shortage to the consumers and the consumers will be impacted, which will squeeze the overall market, he added.

"Due to the volatile situation in forex reserve, we are facing a significant increase in import cost of infrastructure materials as most of the items are imported," said Shahed Alam, chief corporate and regulatory officer of Robi Axiata Ltd.

Moreover, the telecom operator has foreign loans and it has to repay the loans by purchasing dollar at higher prices.

Adding to its misery, Robi was not getting adequate support from the partner banks due to the dollar shortage in the market.

"Hence, forex loss is depriving us significantly from a stellar profit margin," Alam said.

Among all the listed companies, Power Grid felt the heat the most from the currency turmoil.

The government-owned power grid company incurred a loss of Tk 281 crore in the July-September period of 2022 whereas it logged a profit of Tk 196 crore in the same period the previous year.

The company suffered a loss of Tk 729 crore in the six months to December 2022 just because of a spike in the cost of US dollar.

A major portion of the company's foreign exchange loss came from its foreign currency denominated loans for the ongoing projects that have been capitalised under capital work in progress, it added.

If an asset is not completed at the time a balance sheet is prepared, all costs incurred on that asset up to the balance sheet date are transferred to an account called capital work in progress account.

Companies, which are connected to the international market through loans or import of raw materials, were highly impacted due to taka's depreciation as their costs have increased now, said Mir Ariful Islam, CEO of Prime Finance Asset Management Company.

The borrower now has to pay a higher amount of money to repay the loans and interest.

On the other hand, prices of imported goods are now high due to the depreciation of the local currency and it is causing a rise in costs.

If the company cannot pass on the higher costs onto the consumers, it will impact the company's profits, he said.

The companies need to analyse ways to mitigate the risks of foreign exchange turmoil as the global economy is still absorbing the heat of the war between Russia and Ukraine.

About the banks' high income from the dollar dealings, he said a number of banks had a huge amount of dollars, so they could earn by selling the dollar at higher rates.

"There was nothing wrong in it. If they make a profit by creating an artificial dearth, then it is not acceptable," Islam added.

Among the power generation companies, Summit Power booked the highest foreign exchange loss of Tk 368 crore, because of its additional spending for the rapid fluctuation in the exchange rate, said the company in its financial statements.

Square Pharmaceuticals and Beximco Pharmaceuticals also booked foreign exchange losses of a total of Tk 55 crore.

A number of companies did not disclose the foreign exchange gain or loss clearly in their financial report but informed that their profits declined for the foreign exchange volatility.