Worrying trends in industrial lending
Saturday, 21 March 2009
CERTAIN indicators that do not bode well for the growth of the economy are gradually becoming visible. The rate of disbursement of industrial credit by banks has reportedly dropped by 32 per cent in the second quarter of this fiscal compared to that of the previous one. The loan disbursement in question includes different aspects of the issue including fresh loan, rescheduling of existing loan, credit for balancing, modernisation and rehabilitation and expansion (BMRE). That means the overall movement of credit between the banks and the industries has come down. It is possible to show more than one reason to explain away the fall in the term loan disbursement in the banks. The period under review was in the time of the caretaker government. One may recall that at that time the overall business and bank transactions were going at a lower pace because of the fall-outs from all too pervasive anti-corruption drive without going for basic institutional reforms that largely breed corruption.
But the central bank believes that this behaviour of the industrial term loan in the last quarter has still deeper roots than what is visible on the surface. It is rather a reflection of the cautiousness being demonstrated by the business to go for further investment. And it is not only that the business relating to commodities has become shy, the financial institutions, especially banks, too, have started to tighten their belt. So, it is not a single player involved in the reduced flow of term loan from banks to industry. In fact, the general flow of industrial credit has suffered during the period in question, when compared to its performance in the previous fiscal.
But the trend of decline as noted in the foregoing is obvious not only on year to year basis. What is further worrying is that the syndrome is equally visible if one compares the release of the term credits to industries from banks on a month to month basis in a single year. The central bank figures show that in the first quarter of the current fiscal the banks disbursed Tk 49.50 billion, while in the second quarter it was Tk. 39.89 billion. The fall in the bank to industry credit flow in the sector is around 19.42 per cent. That in other words means that the falling trend in the industrial credit flow has no sign of abating.
Naturally, there is reason to relate the trend of the industry-bank credit flow to the overall state of the economy. The argument is gradually becoming strong that the investors both in the manufacturing and the financial sectors are maintaining a status quo about their activities. So their operations as well as further expansions thereof are being kept on a leash. What really are they waiting for? To all intents and purposes, it is the dreaded recession that we had so far been trying to wish away thinking it is happening in faraway places. Not really. It is near at home. The fear was clearly writ large on the faces of the business leaders who the other day sought a stimulus package amounting some Tk 60 billion to get over the impending financial crunch having to do with the global recession. The irony is, so far the same quarters were stubborn in their conviction that the Bangladesh economy will remain unperturbed in spite of the ongoing economic meltdown in the rest of the world.
If the behaviour of the industrial lending is any indicator of the future slump in the economy, then the government needs to take necessary protective measures to tame the impact of the meltdown on our industries and jobs as far as possible. Meanwhile, some actions would also be necessary on the part of the central bank to instruct the banks and the financial institutions not to take measures that would be detrimental to the interests businesses as well as of themselves.
But the central bank believes that this behaviour of the industrial term loan in the last quarter has still deeper roots than what is visible on the surface. It is rather a reflection of the cautiousness being demonstrated by the business to go for further investment. And it is not only that the business relating to commodities has become shy, the financial institutions, especially banks, too, have started to tighten their belt. So, it is not a single player involved in the reduced flow of term loan from banks to industry. In fact, the general flow of industrial credit has suffered during the period in question, when compared to its performance in the previous fiscal.
But the trend of decline as noted in the foregoing is obvious not only on year to year basis. What is further worrying is that the syndrome is equally visible if one compares the release of the term credits to industries from banks on a month to month basis in a single year. The central bank figures show that in the first quarter of the current fiscal the banks disbursed Tk 49.50 billion, while in the second quarter it was Tk. 39.89 billion. The fall in the bank to industry credit flow in the sector is around 19.42 per cent. That in other words means that the falling trend in the industrial credit flow has no sign of abating.
Naturally, there is reason to relate the trend of the industry-bank credit flow to the overall state of the economy. The argument is gradually becoming strong that the investors both in the manufacturing and the financial sectors are maintaining a status quo about their activities. So their operations as well as further expansions thereof are being kept on a leash. What really are they waiting for? To all intents and purposes, it is the dreaded recession that we had so far been trying to wish away thinking it is happening in faraway places. Not really. It is near at home. The fear was clearly writ large on the faces of the business leaders who the other day sought a stimulus package amounting some Tk 60 billion to get over the impending financial crunch having to do with the global recession. The irony is, so far the same quarters were stubborn in their conviction that the Bangladesh economy will remain unperturbed in spite of the ongoing economic meltdown in the rest of the world.
If the behaviour of the industrial lending is any indicator of the future slump in the economy, then the government needs to take necessary protective measures to tame the impact of the meltdown on our industries and jobs as far as possible. Meanwhile, some actions would also be necessary on the part of the central bank to instruct the banks and the financial institutions not to take measures that would be detrimental to the interests businesses as well as of themselves.