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Dhaka Tribune

Demand for foreign loans rises

Update : 16 Nov 2013, 07:50 PM

The rise in foreign loans inflow has put pressure on local banks to cut their lending rates as entrepreneurs are being attracted to the overseas financiers, said official sources.

Bangladesh Bank data shows that the foreign loan inflow increased by 400% to $1.49bn in 2012 from $302m in 2010. In 2011, the figure was $819m.

In the past four years as of October 2013, the central bank allowed private firms to borrow $3.64bn from foreign sources at a lower interest rate of around 5%.

The central bank said most of the borrowed money were invested in the sectors like telecommunication, power and textile.

In September, the average lending rate of private commercial banks decreased by 0.19% to 14.25% while the deposit rate was 9%, from that of 14.44% and 9.1% respectively in June.

“Borrowing from foreign sources at lower interest rates made the entrepreneurs reluctant to take loans at high rates from the country’s financial market,” said NCC Bank Managing Director Nurul Amin.

He observed that the banks of the country have already started lowering rates and the trend will continue further.

The country’s private sector received foreign loans of $80m in January, $84m in February, $322m in April, $154m in June, $59.7m in July and $238.6m in September this year, , according to the Bangladesh Bank data.

The figures were respectively $10m, $200.7m, $402.8m, $40m, $248.6m and 48.6m in the corresponding months of the last year.

Bangladesh Bank is in positive mode to approve foreign loan applications as it has policy decision to put pressure on banks to bring down lending rate by raising competition, sources said.

“Bankers are now under an unwritten pressure to bring down the interest rate against lending due to increased availability of foreign loans,” said Nabhash Chandra Mandal, Executive Member of Board of Investment Bangladesh.

He said banks have already reduced their lending rate slightly from 15% facing the pressure.

“Big entrepreneurs are more interested to take foreign loans as they are getting it at lower rate which as low as 5%.”

The entrepreneurs will soon become interested to take loan in local currency if the trend of reducing lending rate continues, said Nabhash Chandra.

On a similar note, he mentioned the correlation between increased foreign currency reverse and foreign loans. “Our foreign reserve is growing at a sustainable rate for which dollar rate remained stable and the local currency flow wasn’t interrupted either.”

The total foreign loan stood at $1.03bn up to September this year as compared to $1.04bn in the same period of the last year according to the Bangladesh Bank data.

The lending rates would soon come down further due to continued cut in deposit rates by the commercial banks and falling inflation, said Bangladesh Bank Governor Dr Atiur Rahman.

“Borrowing from foreign sources at lower interest rate will also help interest rate in the country’s financial market come down as the competition will increase resulting in higher efficiency,” said governor.

The excess liquidity of the country’s banks increased by Tk240bn or 40% during January-September period of the current year and stood at Tk840bn from Tk600bn in January, according to the Bangladesh Bank data.

The credit growth of the banks was 13.39% in January with surplus liquidity of Tk600bn, followed by 10.29% growth in March with Tk660bn in excess liquidity. The growth was 8.97% in June when the liquidity was Tk790bn and 7.40% in September as the liquidity rose to Tk840bn.  

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