Manufacturers line up for low-cost foreign currency loans

Manufacturers are rushing to take low-cost long-term foreign currency loans from the special World Bank-Bangladesh Bank fund, bankers said.

Bangladesh Bank in collaboration with the World Bank took an initiative last year to channel long-term loans to the manufacturing sector at low interest rates.

A $350 million fund was created and already 25 private commercial banks have signed deals with the central bank to disburse the loans for their clients.

Loans under the scheme will cost a bank 3.25-3.5 percent, which, in turn, will charge its clients a maximum of 6.5 percent interest rate. The tenure of the loans will be at least three years and at most ten years.

"There is huge demand for the loan. We are getting applications from our clients every day," said Shafiqul Alam, managing director of Jamuna Bank.

Abdul Halim Chowdhury, managing director of Pubali Bank, echoed the same. "Not only is the demand for loans under the scheme high, the amounts the clients want are big too."

The project became effective on September 20 last year, with the BB setting up a department, named Financial Sector Support Project and Strategic Planning Department, to implement it.

In November last year, the BB issued a letter outlining the criteria for banks to use the loans.

Now, the commercial banks are sending their clients' credit proposals to the BB.

"So far, we have got 35 applications, of which eight have been approved for loans worth $38 million," said Subhankar Saha, executive director and spokesman of BB.

Saha said they have also started disbursing the loans.

But some banks have been left in the dark regarding their credit proposals: they are yet to be approved and the banks do not know the reasons behind it.

One such bank is Al-Arafah Islami Bank.

"We have sent several proposals to the BB but we are yet to get any sanction letter," said Habibur Rahman, managing director of Al-Arafah.

Some bankers said the stringent conditions might ward off many borrowers from availing the loans.

Already eight state banks are not eligible for the funds due to their high non-performing loan ratio.

For eligibility, the bank's NPL ratio has to be within 8 percent, but as of December 31 last year, the state banks' average NPL stood at upwards of 20 percent.

In contrast, the average NPL of private banks stood at below 5 percent on December 31 last year.

Other than a low NPL ratio, the bank's CAMELS rating, which is a supervisory rating system to measure a bank's overall condition, has to be good to get the loan, according to BB.

Nine new banks that came into operation in 2013 are also missing out on the funds, as they are required to be in operation for at least three years to access the loans.

Banks with observers in them are also disqualified from the fund.

The supply of long-term financing is restricted by the banks' limited access to long-term resources, capacity constraints and their relative comfort and preference to undertake shorter-term financing, according to the WB.

The factors inhibit long-term investments by households and the ability of firms to invest in capital upgrade and technology, expand and grow businesses and jobs at a faster pace.

A WB estimate shows there is a significant demand for long-term financing by firms, conservatively estimated at $1.5-2 billion per year, for the export market. Yet, supply by the market lags behind significantly.