Cos with piled-up cash to benefit from monetary policy tightening

The contractionary monetary policy for the first half of FY24 brings cheers to the companies having huge net cash as they are expected to see higher interest income.
The increased cost of borrowings aimed at containing the consumer price index is less of a worry to them.
The withdrawal of the lending rate cap will lead to a rise in interest on loans from banks and non-bank financial institutions (NBFIs). The interest rate of bank loans will surpass 10 per cent while of NBFI loans 12 per cent from the existing ceiling of 9 per cent and 11 per cent.
Subsequently, interest rates offered up to 6 per cent and 7 per cent by banks and other financial institutions against FDRs (fixed deposit receipts) will go up. And the companies with sufficient cash will reap the benefit of high interest rates.
"Such [interest] income will eventually boost their earnings," said Asif Khan, chairman of EDGE Asset Management.
For example, non-operating income of state-run listed companies, especially of fuel and power companies, outstripped their operating income in recent years because of their huge cash.
Meghna Petroleum, Jamuna Oil, and Padma Oil will stay ahead of their peers in terms of interest incomes. They have Tk 44 billion-Tk 64 billion in cash, according to their latest quarterly financial reports.
Another state-owned company, Titas Gas Transmission & Distribution Company's non-operating profit saved it from losses in the nine months to March this year.
Insiders say the companies, which have kept their cash with banks or other financial institutions in the form of FDR (fixed income receipt) or other instruments, will bargain for a hike in interest rates.
They may also transfer their cash to other banks or NBFIs, seeking high interest income.
Some of the listed companies from the private sector will also find the changing lending rate regime favourable.
A blue chip company, Square Pharmaceuticals has net cash of Tk 58 billion. The company gets a substantial amount of interest income from the fund.
Of other private companies, Oylmpic Industries has Tk 2.61 billion while multinational company Marico Bangladesh has Tk 4.79 billion.
bkash, a subsidiary of BRAC Bank, has Tk 16.92 billion stacked up in cash.
The chairman of EDGE Asset Management said BRAC Bank would be benefitted from the cash of bkash.
Mr Khan also said cost of borrowings would rise disproportionately for strong and weak companies.
The firms with good financial strength will not see any major change in interest burden as lenders have faith in them. On the other hand, the companies with fragile corporate and financial structures will have to pay more against loans within the stipulated range, Mr Khan added.
However, manufacturing firms that are highly leveraged may exhibit shrinking profitability due to higher interest expenses.
They are likely to face a fund crisis too as cost of borrowings would go up for the monetary policy tightening, according to an analysis by EBL Securities.
Listed automobiles companies, cement manufacturers and private sector power generation companies, which have already been under stress, may face further financial pressure.
The central bank said in its monetary policy statement that the public and private investments largely depend on banks in absence of a well-developed capital market.
It acknowledged the role of the capital market in long-term economic development of the country and emphasized the need for a thriving bond market.
The Bangladesh Bank had instructed NBFIs to explore opportunities to mobilise funds by issuing bonds rather than relying heavily on banks.
Investors can reduce business costs and improve operational efficiency by borrowing from the bond market at competitive rates, the central bank said in the monetary policy statement unveiled on Sunday.
Experts, however, insist that policy-level changes done until now are not enough to address concerns on the supply and demand sides of the bond market.

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