The central bank has sought fresh financing from the World Bank as its long-term funding under the Financial Sector Support Project (FSSP) is drying up.
The Bangladesh Bank (BB) is implementing the project under the Financial Institutions Division (FID) with the financial assistance of the World Bank (WB). The tenure of the project ends in March 2021.
The total allocation for the long-term financing facility (LTFF) under financial sector component of FSSP was US$ 291.25 million. Of which, US$ 273.84 million has already been sanctioned for the manufacturing entities of various sectors, leaving the fund balance to only US$ 17.41 million to cater to the loan applications at hand worth more than US$ 350 million from 31 participatory financial institutions (PFl) latest by September 2018, according to the FID document.
In 2015, the government has entered into a loan agreement with the WB to provide long-term financing in foreign currency to the manufacturing industries for a period of three to ten years.
The goal of this long-term financing facility is to reduce the gap and mismatch between short-term deposits and mid-to-long-term financing prevalent in the banking sector of Bangladesh.
At present, local commercial banks provide long-term loans to the sector using the source of short-term deposit.
A recent survey conducted by the BB among the existing borrowers and PFls/commercial banks clearly shows the prevalence of strong demand for long-term financing in the market, said a central bank official.
It has become necessary to increase the funds by a minimum of US$ 350 million to cater to the funding requests already at hand, he added.
Otherwise, the private-operated long-term investment flow to the productive sector of Bangladesh would be hampered, affecting the growth in the private sector, he mentioned.
In this context, the BB has requested for topping up of the LTFF with at least US$ 350 million and an extension of the LTFF agreement for two more years, the official said.
The finance ministry has also asked the Economic Relations Division (ERD) to forward the proposal of the BB to the Dhaka office of WB to consider the proposed extension of LTFF agreement for two more years, a high official of the finance ministry said.
From the LTFF under the FSSP, the banks can lend money for ventures in the industrial productive sectors for a tenure of three to 10 years, under the condition that the banks would pay interest rate between 2.50 per cent and 3.00 per cent, including LIBOR (London Inter Bank Offered Rate), depending on the category of banks, according to an official of the foreign exchange policy department of BB.
Earlier the rate was 2.50 per cent to 3.50 per cent, including LIBOR, he said.
The interest rate is being fixed considering the respective bank's CAMELS (capital, assets quality, management, earning, liquidity and sensitivity) rating, he added.
© 2024 - All Rights with The Financial Express
