The Bangladesh Bank (BB) while unveiling its latest half-yearly monetary policy statement (MPS) has suggested the big corporate houses mobilise funds from the capital market instead of borrowing from the banks.
Such a move would leave more banking sector resources for small borrowers and help banks avoid the risks involved in high concentration of funds in few businesses, said BB governor Dr. Atiur Rahman explaining. The BB released the MPS for January-June period of the current financial year last Monday.
The central bank suggestion is innocuous but it, if adhered to faithfully by big corporate houses, under the prevailing circumstances, could give rise to sufficient troubles for banks now floating on a sizeable excess liquidity, estimated at Tk. 900 billion in November last.
Political troubles of severe nature during past few months had shaken the business confidence, leading to low investment in the economy. Like many other business entities, the banks also took the brunt, mainly in the forms of 'reduced lending' and low profitability.
Banks, particularly the private ones, are now desperate to dispose of their idle funds just to remain afloat. An apparent normalcy has returned after the January 05 controversial general elections. But that seems to be not enough for businesses to plunge in full gear. They are still caught up in a sort of 'wait and see' policy. So, bankers are finding not many potential borrowers these days.
Apart from troubled politics a liberal attitude on the part of the government towards private foreign borrowing has also made the situation difficult for banks, at least partially.
The government has allowed private foreign borrowing to the extent of US$1.8 billion in 2013 compared to 1.04 billion in 2012.
The day before the release of the latest MPS, the Board of Investment scrutiny committee for approval of foreign loan/suppliers' credit approved foreign private loans amounting to US$ 106.6 million for 13 private sector projects.
Many large and medium private sector companies are now found to be more interested to procure low-cost funds from abroad despite all the hassles involved in the same. The maximum rate of interest allowed in the case of the loans approved last Sunday was 6-month LIBOR plus 4.6 per cent per annum. The 6-month LIBOR rate on last Sunday was 0.33 per cent.
As against the international borrowing rate of around 5.0 per cent, the local banks would charge between 14 and 17 per cent on the borrower. However, the banks are left with no option other than fixing lending rates on the higher side because of their high cost of fund. And if the banks lower their deposit rates, funds would flow out to government savings tools and other instruments that offer higher yields. It is more of a Hobson's choice for the banks as far as deposit and lending rates are concerned.
The central bank's worry about the concentration of banks' large fund in a few big businesses, it seems, has stemmed from a number of recent loan scams. The problems with these loans were mainly due to the fact that the banks concerned, particularly the state-owned ones, overlooked the flaws in loan processing and loan recovery process.
All banks tend to prefer big clients since it involves less cost and supervision. But quality and track records are two important elements in the selection of the right kind of borrowers.
However, the BB suggestion towards the big corporate houses to try the capital market to meet their financing need deserve due consideration for the benefit of these houses and also for a healthy growth of the market.
A good number of big business houses that deserve to be on the bourses are not interested to go public and place them under the scrutiny of general shareholders. The owners are more eager to maintain control of their respective families over the affairs of their companies.
These companies can easily raise funds from the capital market to pay off their bank debts and invest the rest in expansion activities. But they won't. Rather, they would continue to knock the doors of different banks as it suits them best.
However, apart from the unwillingness to give up control over family-owned company affairs, the unpalatable situation that the chairmen and the members of the board of directors at times face at the annual general meetings (AGMs) of the listed companies could be yet another factor discouraging the owners of big private company owners from going public.
A section of so-called investors are usually creates all the troubles demanding undue benefits and gifts. Then again, some non-performing listed companies hire these trouble-makers to silence the genuine investors. The securities regulator has taken a few moves to stop such unhealthy developments. But the situation is yet to be fully improved.
   zahidmar10@gmail.com
Well-intended but not entirely innocuous
Shamsul Huq Zahid | Published: January 29, 2014 00:00:00 | Updated: November 30, 2024 06:01:00
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