Volume of outstanding buyers\' credit keeps bulging

The volume of buyers' credit in the country's banking sector increased 14.05 per cent in January last as importers got higher amount of the same taking the advantage of lower interest rates.
The size of the credit, channelised through Usance Payable At Sight, generally known as 'UPAS', was US$1.06 billion in January. It was $934.37 million in the previous month, according to latest statistics of  Bangladesh's central bank. The amount was US$ 970.45 million in November last.
The UPAS is a Usance L/C (letter of credit) which is payable at sight to the seller (beneficiary) while  payment settlement from the applicant (buyer) to the lender is made at the end of usance term.
The repayment of loans by importers also increased by 16.71 per cent to $1.02 billion in January last from $934.37 million a month ago, the official data showed.
Such loans are received in foreign currency from overseas sources on the basis of local bank guarantees mostly at an interest rate ranging between 3.50 per cent and 6.00 per cent.
The foreign currency loans have become popular gradually mainly due to lower interest rates offered by local banks or overseas sources, according to the central bank officials.
The net outstanding buyers' credit rose to $5.41 billion in January 2017 from $5.35 billion a month ago, according to the Bangladesh Bank (BB) data.
The central bankers, however, said the effective interest rate of the buyers' credit will increase if the local currency, Bangladesh Taka (BDT), depreciates against the US dollar (US$).
The volume of local currency depreciated 1.47 per cent against the US dollar in last five months due to higher demand for the greenback in the market.
Earlier on October 27 last, the BDT witnessed a depreciating trend against the US dollar after maintaining stability for more than seven months in the inter-bank forex market.
The US dollar was quoted at Tk 79.56-Tk 79.57 in the inter-bank forex market on Thursday against Tk 78.40-Tk 78.42 on October 27 last, according to market operators.
Earlier on March 13 of last calendar year, the US dollar was quoted at Tk 78.40.
"The trend of BDT losing value against the US dollar may continue in the coming days due to higher demand for the greenback in the market for settlement of import payment obligations," a senior treasury official of a leading commercial bank hinted.
Lower inflow of remittances along with export earnings in February has pushed up the demand for the US dollar, the treasury official explained.
Talking to the FE, Abdul Matlub Ahmad, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) said, buyers' credit should be discouraged for avoiding exchange rate risk and to utilise excess liquidity in the country's banking sector.
"We've enough excess liquidity with the local banks. So local currency loan should be encouraged," the FBCCI chief explained.
The overall excess liquidity in commercial banks stood at around Tk 1.15 trillion as of January 31 last. But major portion of the funds has been invested in risk-free government securities, according to a senior BB official.
He also said excess reserves, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, stood at around Tk 44 billion.
"The amount of excess liquidity fell slightly during the period under review as credit growth, particularly in the private sector, increased," the central banker noted.
The growth in private sector credit flow rose to 15.61 per cent in January 2017 on a year-on-year basis from 15.55 per cent in December 2016. It was 15.01 per cent in November.
The overall excess liquidity with the commercial banks was around Tk 1.16 trillion in December last.
When contacted, M A Halim Chowdhury, Managing Director and Chief Executive Officer of Pubali Bank Limited, said the repayment burden for foreign currency loan will rise if the value of BDT against the US$ goes down.
"Such loan is suitable only for export-oriented business entities," the senior banker said without elaborating.
 On the other hand, the central bank is allowing such low-cost credit to achieve maximum economic growth through industrialisation in Bangladesh, another BB official said while explaining the main objective of the buyers' credit.
He also said businessmen are now allowed to avail buyers' credit to import capital machinery and industrial raw materials.
"Such credit also helped reduce interest rates on lending in local banking system in the recent months," he said, adding that it also helps neutralise inflationary pressures on the economy stable.
The weighted average interest rates on lending came down to 9.85 per cent in January 2017 from 9.93 per cent a month before. It was 11.05 per cent in January 2016.
The central bank of Bangladesh had opened up the opportunity for taking foreign currency loans in February 2012, with importers making its best use.
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