Borrowing of low-cost funds from overseas sources by private sector entities continued to rise in the year 2014.
The inflow of foreign funds for the private sector increased by around 17 per cent last year when the local banks sat on tonnes of idle money.
Borrowers and business leaders have attributed such a steep rise in overseas borrowings to the higher lending rates being charged by local banks and other financial institutions.
On the other hand, bankers and experts have blamed the government's policy on yield rates of its savings tools for the steep rise in the inflow of foreign funds for the private sector.
According to the latest data of the central bank, outstanding external debt of private sector of the country stood at around US$ 4.73 billion until December, 2014 which was $4.06 billion in the corresponding period of 2013.
Chairman of the Basanta Group, Samsul Amin Bhuiyan who took $12.5 million loan from overseas sources said business means competition. So to become competitive in the market, any one can go for low-cost funds, he argued.
"It is quite natural that businessmen will try to avail funds where its cost is low. I'm doing business, not charity. "I will avail funds from any bank, within or outside the country if it provides me competitive rates," he said.
"The lending rate at local banks is at least 10 per cent higher than that offered by foreign ones, so why will we not avail the cheaper one?" he questioned.
Besides, one has to keep in mind that local businesses have to compete with their international rivals. So to stay in the battle field, anyone has the right to search for fund that would be cost effective for his business," Mr Bhuiyan added.
The data available with the Board of Investment (BoI) also showed that local companies are showing increased interest in foreign credit as they get funds at around 5.0 per cent interest, including six months' LIBOUR rate, while the lending rates charged by the country's banks and financial institutions range from 13 per cent to 17 per cent.
However, bankers claimed that high yield rates of the government's saving tools had forced them to keep their lending rates at high levels.
"The rates of yield of the government's saving tools are high. If we reduce interest on deposits then the banks will face shortage of liquidity, so how can we bring down our interest rate?" asked Managing Director of NCC Bank Ltd Nurul Amin while talking to the FE.
"We have urged the government several times to either reduce yield rates of saving tools so that we can bring down our lending rates and help lower the inflow of overseas," he added.
Chairman of the Association of Bankers, Bangladesh Ltd, Ali Reza Iftekhar said lucrative interest rate lured the local businesses to opt for overseas loans which is quite natural in business.
"We will discuss the issue in our next meeting scheduled to be held on April 08, 2015 and then sit with the central bank authority to find out a way out," he added.
"Unless the government reduces profit rates of saving tools, local banks would not be able to lower interest on their lending," Mr Iftekhar, also managing director of Eastern bank Ltd, said.
However, economists also expressed their concern over uptrend in foreign borrowing.
They said it might create pressure on the country's foreign currency reserves. And in case of any fall in the inflow of foreign currencies officially, refunding of the loans might become a big headache for the state.
"It's the stupidity of the government as it is collecting funds from the people offering high rates of profit. If the government doesn't reduce the rates then how will the bankers do it?" asked Dr Ahsan H. Mansur, a financial market expert.
"Preventing the inflow of foreign fund cannot be a solution. It is natural for a businessman to seek for the low-cost loans," he added.
"Let the bankers compete with other financiers. The government has to come forward to save the local banks."
Former governor of the Bangladesh Bank (BB) Dr Salehuddin Ahmed said the trend of having overseas loan may destroy the level-playing field among local investors.
"All the investors are not getting access to the low-cost foreign funds. So those who will be able to get such funds will be one step ahead of others, which might create an uneven competition among them," he added.
"It is quite natural that investors will look for low-cost sources, but, being a regulator, the BB has to consider risk factors such as foreign-exchange risks, depreciation, remittance inflow, export growth etc before permitting locals to avail foreign loans. Otherwise, the foreign funds might become a headache for the country one day."
Headed by the BB governor, a committee comprising representatives from the BoI, the ministries of finance, commerce and industries and Prime Minister's office makes the final decision on permitting any company to take overseas loans.
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