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Banks default international payments

  • Published at 07:27 pm December 14th, 2013

Two commercial banks have defaulted repayment of foreign loans against letters of credit (LCs), creating a cause of concern that Bangladesh’s credit rating might deteriorate as well as the LC confirmation cost would rise further.

Official agencies recently apprised Banking and Financial Institutions Division of the allegations of payment failures, a senior official told Dhaka Tribune. “The country’s image in the financial world is now at stake, as a result,” he said.

Two local private commercial banks Prime Bank and Dutch Bangla Bank allegedly failed to repay the loans (not more than US$2 million only) from the Islamic Corporation for Insurance of Investment and Export Credit (ICIEC), an associate organisation of the Islamic Development Bank (IDB).

“We are examining the matter because most of the local banks are in real financial trouble due to the political deadlock ahead of the general election,” another official said on Thursday.

He said local commercial banks are now unable to repay the loans against local and foreign LCs due to stagnated business activities amid political deadlock and prolonged violence.

Sources in the banking division said they would ask the banks to immediately pay the loan while expressing concern that banks like Islami Bank Bangladesh might face a setback for their high dependence on readymade garments exports if the political unrest prolongs.

Last week, the Middle-East wing of Economic Relations Division issued a letter to the banking division, expressing the concern.

As per the latter, LC confirmation cost will be increased unless the local banks maintain the standard credit rating of the commercial banks.

It said the local banks should regularly repay the loans of foreign financial institutions and banks to protect the image of local banks and the country as well.

ERD forwarded an ICIEC letter through an email to the banking division for immediately solving the problem.

“We have already cleared the payment. There was a technical difficulty causing delays,” Prime Bank Managing Director Managing Director Ehsan Khasru told Dhaka Tribune on Thursday. Dutch Bangla Bank would not respond, however.

Bangladesh achieved Ba3 from (Moody’s) stable rating for 4th consecutive years (2010-13) and BB-(Standard & Poor’s) sovereign rating with stable outlook for four consecutive years (2010-13).

Standard & Poor’s and Moody’s will rate Bangladesh’s economy for two more years, officials of Bangladesh Bank said.

The government decided to extend the job of the global rating agencies for 2014 and 2015 on the advice of the central bank, a finance ministry official said.

Last year, Moody’s reassessed Bangladesh’s rating unchanged at Ba3, for the third consecutive year. Bangladesh’s rating is higher than that of Sri Lanka (B1) and Pakistan (Caa1), but one notch below India’s.