Despite having a strong liquidity backup, banks are yet to begin disbursements of loans under the stimulus package – announced by the prime minister on April 5 – to revive businesses ruined by the Covid-19 shutdown.
Although the affected businessmen are rushing for loans under the bailout package, the banks are delaying the process on account of not getting risk-sharing arrangements from the government's end, said industry insiders.
In the meantime, the government is working with the World Bank to arrange a credit guarantee scheme in the face of demands from bankers for sharing the credit risk under the package.
In the last one month, banks have received loan proposals up to 60 percent of their portfolios, reflecting a huge response from borrowers, according to the banks.
However, the Bangladesh Bank has received only 4 to 5 applications till May 17 from the banks for final approval of loans under the package, said sources at the central bank.
After approving loan applications, the banks need to send those to the central bank for final approval.
Prime Minister Sheikh Hasina has announced a total incentive package amounting to Tk72,750 crore. Of the amount, Tk50,000 crore will be sourced from the banking sector. Under the Tk50,000 crore package, some Tk30,000 crore has been allocated for industries and the service sector and Tk20,000 crore for Small and Medium Enterprises (SMEs).
The Bangladesh Bank has already supported 50 percent of the total amount that will be taken from the banking system, to help the banks implement the package.
Only Sonali, the country's largest state-owned bank, has so far released Tk1,000 crore for Biman Bangladesh Airlines against the government guarantee under the Tk30,000 crore package.
No private banks or other state-owned banks have begun to release money, according to bankers. Even, Sonali has not disbursed loan to any other entity except Biman.
As a result, the affected industries are facing an acute financial crisis and unable to pay salaries to their employees.
For instance, US-Bangla, the largest private airline, sought working capital under the stimulus package from Islami Bank last month but has not got approval yet.
Local airline operators are going through a severe financial crisis as the aviation sector is the first and most affected by the Covid-19 pandemic that caused flight suspensions around the world.
A senior official of US-Bangla said their loan approval is being delayed as they could not arrange the required collateral.
The airline incurred a loss of around Tk250 crore in March-April, according to the company.
Abu Reza Md Yeahia, deputy managing director of Islami Bank, said they have not started disbursing money under the package yet.
Loan proposals are still being scrutinised to see if clients have their collateral capacity and the ability to recover their businesses, he added.
Private airlines are not getting loans as they do not have adequate collateral, said Md Mohibul Haque, senior secretary to the Civil Aviation and Tourism Ministry.
As a result, they are suffering from an acute financial crisis, he added.
Biman was completely unable to pay salaries to its staff for not having any cash flow amid the suspension of flight operations since March. The Tk1,000 crore loan has given it breathing space, enabling it to pay salaries to its employees and come back to operation, said a senior executive of the company.
Biman got the loan from Sonali Bank with the government's persuasion and on condition of giving sovereign guarantee which is not possible for other operators, he said.
SMEs worst sufferers
The SME sector is the most acute sufferer due to the banks' reluctance to issue loans.
For instance, small beauty parlours could not pay their workers for the last couple of months with their businesses closed down.
Persona, a renowned beauty service provider, could not pay salary to around 2,700 employees last month.
"We have applied for a loan to pay salaries but the process is very slow and requires lots of paperwork," said Kaniz Almas Khan, chief executive officer of Persona.
She said after she shut down her business, Persona continued to pay its employees for two months but other small beauty shops could not do that.
The industry needs immediate support to pay their workers and run their businesses, she added.
Being in good relation with banks matter now
Why are banks not disbursing money under the stimulus package?
It is not a liquidity problem but a risk assessment issue coupled with strict conditions for the stimulus package that have made banks extra cautious in lending, said Rahel Ahmed, managing director of Prime Bank and also general secretary of the Association of Bankers, Bangladesh (ABB).
He said there were many strict conditions in the guidelines which were later relaxed to some extent by the Bangladesh Bank in consultation with bankers. For instance, the credit rating for business entities was waived under the stimulus package.
The revision of the guidelines has also taken up some time, he said.
Moreover, risk assessment is a critical issue. If banks fail to recover money, the Bangladesh Bank will take the subsidised interest amount from the banks' accounts.
Therefore, the banks are very cautious about approving loans to the customers, he added.
Banks also waiting for credit guarantee
The Banks are also going slow in processing loans in the hope of getting a credit guarantee scheme as the government is working on the issue with the World Bank, he said.
Prime bank, one of the largest private banks, has so far received applications for 60 to 70 percent of its portfolio but has not sanctioned any loan yet.
The Business Standard talked to a dozen state-owned and private banks and found none of them had started disbursing loans under the stimulus package.
The loan process is being delayed as the banks are strict about collateral against loans. Most of the clients could not come up with it, said Mohammad Shams-Ul Islam, managing director of Agrani Bank.
He said the banks are emphasising collateral as there is a lack of trust. It is a common problem for customers to default on loans.
So, the banks are preferring to select their trusted clients for issuing loans under the stimulus package, because the recovery of the loans is the responsibility of the banks. If the banks fail to recover, they will have to pay the government from their own accounts, he added.
Agrani Bank has got a huge response from borrowers and they are scrutinising the proposals, he said.
The implementation of the stimulus package will be difficult for the private banks for not having risk-sharing arrangements, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank and former chairman of ABB.
He said loans will be given based on a bank-client relationship as per the Bangladesh Bank's guidelines over the implementation of the package.
So, the banks will be very cautious about selecting clients, he said in a recent online discussion with Bangladesh Institute of Bank Management.
He said though liquidity is not the problem right now, it will be a problem in the long run as deposits have been declining. So, more relaxed policy measures are needed to support the banks, he opined.
However, economists think that easier terms for the loans are needed for the businesses to start a turnaround.
Conditions for implementing the stimulus package needs to be more relaxed to release money, said Dr Ahsan H Mansur, an economist and also executive director at Policy Research Institute.
He said introducing a credit guarantee scheme will not be wise in Bangladesh perspective. But the central bank should take at least 50 percent risk-sharing measures to encourage banks to implement the package.