BB's long-term loan scheme in US dollar

FE Team | Published: July 18, 2023 21:17:26

That the Bangladesh Bank (BB) has taken up a scheme to extend long-term loans in US dollars from its own coffer mainly to the export-oriented manufacturing sector is undeniably a step in the right direction. As it comes immediately after the expiry of the US$500 million worth of World Bank (WB)-sponsored Long Term Financial Facility (LTFF) under its Financial Sector Support Project (FSSP) channelled through the central bank, the present effort of the BB is obviously well-timed.
As noted in the BB's guideline for the new credit line, the just concluded WB-supported LTFF was highly popular among the businesses engaged in exporting and manufacturing. That was only expected because the country's banking sector was unable to meet this demand for long-term credit facility,both in terms of local and foreign currency, as it lacked the needed policy instruments and methods to do so. Now with the new BB scheme available to them, the participating financial institutions (PFIs) authorised to deal with foreign currency and fulfilling certain eligibility criteria should be able to play their due role in the financial market. So, the new home-grown BB scheme is expected to help exporters and other private sector operators in manufacturing and desperately in need of long-term soft loans in foreign exchange to continue their business including procurement of capital machinery and raw materials. As reported, the fund will also help them set up new installations and expand operation of the existing ones.
So, the importance of this facility cannot be overemphasised at a time when the prevailing greenback crunch has been impacting the country's manufacturing industries, especially their production flow metric (the so-called throughput) negatively with its attendant knock-on effect on the exports as well as consumer prices. The BB's own LTFF, with its highest limit of up to US$5.0 million that can be extended to a borrower applying through a single PFI, or not exceeding US$10 million, in case the lending is made through a syndicate of two or more PFIs, has come in handy for these manufacturing industries. However, it is also important that the authorised lenders exercise necessary prudence while using the new central bank provision. Such caution is particularly germane to the current context when the banking sector is rife with financial scams and non-performing loans (NPLs). That requires the BB to be especially careful about the PFIs to be selected to disburse the long-term credit to its clients. For instance, they should conform to the international rating system of banks such as CAMELS. The system requires that the financial institution under scrutiny would fulfil the conditions of having capital adequacy, quality asset, good management as well as earnings and is sensitive to the market risks. The good news is that the central bank is learnt to have been using this system to enlist the PFIs to serve the exporting-manufacturing sector with the critical finance in foreign currency in its hour of need.
Understandably, the central bank will have to walk a tight rope by way of supporting the relevant manufacturing sectors with the much needed long-term credits in US dollar, while at the same time keeping close watch on the forex reserve situation which has meanwhile slid below the desired level. Hopefully, the BB will be able to strike a balance between these two mutually exclusive exigencies the nation has been dealing with at the moment.