The Bangladesh Bank has created additional money worth Tk70,794 crore through various refinance schemes and easing regulatory requirements after the Covid-19 outbreak in March for stimulating demand to revive the declining economy.
Usually, banks disburse loans of Tk70,000-Tk80,000 crore every year following credit demand, but lending capacity is assumed to be less this year due to borrowers not returning money amid a shutdown of business activities.
So the central bank expects that about Tk30,000 crore will come from banks this year. As a result, total Tk one lakh crore is ready to flow in the market, said a senior executive of the Bangladesh Bank.
However, banks are getting little response from business enterprises for loans due to strict conditions and a complicated process.
For instance, Biman Bangladesh Airlines – which has been going through severe cash crisis due to suspension of flight operations – recently sought working capital of Tk1,500 crore from state-owned Sonali Bank under a stimulus package. But the bank denied the loan proposal on the grounds of not having sovereign guarantee from the government.
Later, Biman arranged for the sovereign guarantee for Tk1,000 crore and finally obtained approval.
"We approved a loan to Biman after getting government sovereign guarantee," said Md Ataur Rahman Prodhan, managing director of Sonali Bank.
He said the bank has received few proposals from the private sector so far under the stimulus package. They provided loans to some government organisations, including Biman, after the package was announced.
Like Biman, private organisations are also facing difficulties to meet loan approval requirements.
US-Bangla, a private carrier, needs loans of Tk250 crore as running capital for a year, but a loan limit of 30 percent of its existing capital under the Tk30,000 crore stimulus package allows it to only borrow Tk15 to Tk20 crore, said Sikder Mezbahuddin Ahmed, adviser to the carrier.
Moreover, depressed consumption amid a countrywide lockdown is also responsible for the lacklustre response for loans from businesses, said bankers.
"We did not get any loan proposals under the stimulus packages yet," said Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh (ABB), and the managing director of Mutual Trust Bank.
"Actually, industries need no money for business operations now – they need money only for paying salaries," he explained.
Barriers to utilising the stimulus packages
"Stimulus packages were announced for business entities, but at this moment, money needs to flow to people's hands for stimulating consumption," said Mamun Rashid, managing partner of PricewaterhouseCoopers Bangladesh, a global consultancy firm.
He said business enterprises need to sell their existing products instead of going for further production.
On the other hand, complex processes for applying and getting funds from the stimulus package has slowed down releasing of the money.
For instance, disbursing loans for garment workers has been delayed due to a task the banks are not ready to handle. Instead of the RMG factories, Banks were given the responsibility to verify the RMG workers' names and national identification numbers – a job difficult for the banks to carry out.
"How can banks ensure that the workers are actually employed by the factories?" Mamun questioned. "Garment factories should verify it.
Further complicating the process is something beyond the bank's responsibility. For instance, there are many errors in the spellings of workers' names and their national identification cards. This also is delaying the release of the money.
Then there are global market factors in force that are affecting the banks' decisions. Frequent order cancellation by buyers in the garment sector have made banks shy away from import financing.
In case of contract export and import, importers are finding it difficult to get acceptance from banks because of order cancellation fears.
"As a result, opening letters of credit (LCs) dropped drastically in April," Mamun further said.
Loans under the stimulus package will be given based on the bank-client relationship. In this case, banks will not give loans to the vulnerable small and rural businesses.
"NGOs and microfinance organisations should be included under the stimulus package for ensuring flow of money to the rural poor so that demand is stimulated," he suggested.
If only banks remain responsible for disbursing the money, 50 percent of the stimulus package funds will not be disbursed, Mamun stated.
Stimulus packages worth Tk70,794 crore
The large new refinance lines for banks are intended to protect livelihoods by meeting the liquidity infusion needs or increasing the flow of money for supporting normal economic activities, said a senior executive of the central bank who is involved with managing the money market.
"All regional and global multilateral financial institutions have also joined hands in infusing liquidity through expanding digital money balances to uphold essential consumption demands and to reactivate normalcy in the global economy," he added.
The Bangladesh Bank has formed a refinancing fund of Tk25,000 crore to support banks in executing two stimulus packages of Tk50,000 crore, announced by the government for large and small industries.
The central bank also formed a Tk5,000 crore pre-shipment refinance scheme to help export-oriented industries.
Furthermore, the Export Development Fund was extended by $1.5 billion (Tk12,750 crore) to facilitate the export sector.
A new fund of €200 million (Tk 1,838 crore) was also introduced for green projects.
The central bank introduced a Tk3,000 crore subsidised loan fund for supporting small and medium enterprises (SMEs) affected by the Covid-19 pandemic. It curtailed the cash reserve ratio (CRR) to 4 percent from 5.5 percent, releasing fresh Tk20,000 crore from the central bank reserve.
The Bangladesh Bank will also give interest subsidy to agriculture loans of Tk1,206 crore.
Recently, Prime Minister Sheikh Hasina announced an incentive package of Tk72,750 crore to offset the possible downturn due to the outbreak of the novel coronavirus.