The demand for industrial term loans continues to fall on the back of growing political instability leading to a decline in the country's aggregate output, people familiar with the matter told the FE.
The demand for industrial loan has started to fall since the early days of the calendar year. But it gained speed during July-September last when 66 per cent of the same disbursement dropped against its corresponding period last year.
Industry people have said the industrial term lending that starts maturing after a 36-month period will fall further during the ongoing quarter (October-December) in the midst of the restive political situation.
Banks and non-banking financial institutions (NBFIs) made disbursements worth Tk 330 million throughout July-September. It reached above Tk 970 million in July-September in 2012, according to Bangladesh Bank (BB).
Asad Khan, president of Bangladesh Leasing and Finance Companies Association, a group of 31 non-bank financial institutions, told the FE: "The marked decline in term loans is mainly due to worsening political environment in the country."
Mr Khan, also managing director of the Prime Finance, said: "Industrialists are not investing in new projects or expanding their existing plants amid the volatility on the political fronts."
He said it carries bleak implications for the real economy that has been growing more than 5.0 per cent over the last one decade.
Industries that produce goods and services take such types of loans that include fresh credit for new projects and expansions.
Industries also use the term loans as working capital and for rescheduling of their term-loans.
Mr Khan, however, said fall in term loans might prompt drop in the gross domestic output. Bangladesh Bank has already downsized its forecast on GDP growth to the range of 5.7 per cent-6.0 per cent against the government target of 7.2 per cent.
The industrial sector contributes around 30 per cent to the gross domestic product (GDP).
However, a senior official at Islami Bank Bangladesh said many enterprises were now taking low-cost loans from foreign sources and were adjusting their term loans domestically, which is the reason for the banks' falling disbursement of industrial term loans.
People in the industrial circles said they earlier had decided not to invest during the last year of the government's tenure as it usually accompanies political uncertainties.
Mostafa Haider, a director at the leading commodity conglomerate TK Group, said: "We're not expanding our existing plants, or planning to invest in new projects in the election year."
Mr Haider also said the demand for goods declines during political turbulence. "For this, we refrain from investing in new projects," he added.
Md Jahangir Alam, chairman of MI Cement, owning company of Crown Cement, said political uncertainty in the run-up to elections has acted as the biggest problem for us."
"How will we make investment at a time, when we cannot repay the existing loans following poor sales of goods," Mr Alam said.
The director of TK Group, however, said political turmoil, together with the existing constraints of poor infrastructure and scarcity of gas and electricity, has made their business conditions quite tough.
The industries predict that there will be a rebound in terms of industrial term-loans after assumption of a government that will last.
