Pvt sector\\\'s foreign loans rise ten times

Borrowing funds from overseas sources by private-sector entities has shot up more than ten times in just three years with the country's banking systems glutted with idle money.
Borrowers and experts have attributed such a steep rise in overseas borrowings to the higher lending rates charged by local banks and other financial institutions.
According to the Bangladesh Bank (BB) data, local companies borrowed US$ 1,188.47 million in loans in 2013 against only $106.98 million in 2010.
Local companies are showing growing interest in foreign credit as they get funds at nearly 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, competent sources have said.
Experts said the trend would make export-oriented companies competitive in the international market, but, on the contrary, the low-cost funds might create an uneven competition among the local market players.
They also said if the trend continued, it might create pressure on the country's foreign currency reserves. And in case of any fall in the inflow of foreign currencies, refunding of the loans might become a big headache for the state.
"The trend of having overseas loan is destroying the level-playing field among investors. All the investors are not getting the access to the low-cost funds. So those who will be able to confirm such funds will be one step ahead of others, which might create an uneven competition among them," former governor of Bangladesh Bank (BB) Dr. Salehuddin Ahmed told the FE Wednesday.
"Besides, at present the country has enough foreign-currency reserves. So there is no justification of liberalising inflow of such loans. The central bank should be selective of permitting companies to receive such funds," 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 funds might become a headache for the country once."
Mr Ahmed suggested that the authorities now should concentrate on bringing down the lending rate to a justifiable level in the local banking system.
However, according to a competent source at the Board of Investment (BoI), most of the companies getting foreign loans were big capital-based.
"Mid or small capital-based companies mostly fail to comply with the conditions given by the overseas lenders. So they cannot get the funds," he said.
"We are afraid the big players may smash their weaker competitors."  
A high official of Abul Khair Group, preferring anonymity, said if any company was getting the scope of low-cost funds, then the authorities should leave no stone unturned to enjoy it. "It's natural." Abul Khair Group took $ 90 million worth of foreign credit.
"We are doing business with local banks also. If they want to provide us with more funds, then tell them to reduce interest rate. Otherwise, more companies will come forward to get the same funds," he added.
However, acknowledging the existing higher rates in the local banks, senior bankers said it was mainly because of their increased cost of fund.
"The banks can lower their lending rates, provided the government cuts its rate on bonds and securities, including that of state-run saving instruments," Golam Hafiz Ahmed, managing director and CEO of NCC Bank Ltd, told the FE.
He further said the reduction of yield rates on saving tools could help banks lessen deposit rates, which would ultimately help banks bring down their lending rates.
Mr Ahmed, however, urged the authorities to make sure the local companies were investing the foreign loans in productive ventures instead of using those for other purposes.
Managing Director and CEO of BRAC Bank Ltd Syed Mahbubur Rahman said the local lenders in the meantime reduced the interest rate and were trying for deeper cuts in the coming days.
"We have already reduced interest rate. It would be difficult to cut interest further as a large amount has already been invested in the market," he added.
"However, nothing is impossible. It is possible to cut interest rate, if all the bankers and the regulators sit together and come to an amicable solution regarding interest rates on lending and deposits," he further said.  
Headed by the BB governor, a team comprising members drawn 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.