Economists and experts on Saturday said the Bangladesh Bank initiative to attach the foreign loans with the private sector credit growth in the monetary policy for July-December 2014 would put an adverse impact on the country’s financial sector. They said that such type of initiative would encourage the businesspeople to take more foreign loan, which would hit the profitability of the local scheduled banks.
The central bank on Saturday announced the monetary policy statement in which it included the foreign loans with its target of private sector credit growth for the first time.
The BB set a private sector credit growth of 14 per cent by December 2014, but it said the target of overall private sector credit growth was 16.50 per cent considering the foreign loans.
A BB official told New Age that it was a tough job for the central bank to achieve the credit growth of 14 per cent by December due to existing political uncertainty.
For this reason, the central bank attached the foreign loans with its target to avoid the criticism by avoiding the lower credit growth, he said.
The government usually takes huge amount of foreign loans in every year from abroad, but the central bank do not show the loans in government sector credit growth in the monetary policy.
Former BB governor Salehuddin Ahmed told New Age on Saturday that the BB should not encourage the foreign loans in the interest of local banks.
The banks are yet to reduce their interest rate on lending which will encourage the businesspeople to go for foreign loans, he said.
The central bank should take initiative to reduce the rate of interest in accordance with the interest rate on deposit, Salehuddin said.
The profitability of the banks will decline in the days to come if the businesspeople continue to take loans from foreign sources, he said.
Former finance adviser to the caretaker government AB Mirza Azizul Islam told New Age that some East Asian countries had faced an economic crisis in 1997 as they had taken huge amount of foreign loans.
The BB should take cautious stance in this regard so that the country could avoid such type of crisis due to maturity mismatch in repayment of for foreign loans, he said.
‘The businesspeople usually take the loan on short-term basis from foreign sources. But, they repay the loan on long-term basis which make a maturity mismatch resulting that the country’s foreign exchange business fall into an unstable situation’, Mirza Aziz said.
Against the backdrop, the unstable situation will hit the Balance of Payment, he observed.
There are two new channels through which entrepreneurs can access oversee lenders. One existing channels is borrowing by businesspeople for term credit purposes with most having a maturity five years – around $534 million was approved in the first half of the FY14 while $1.82 billion was approved in FY13 and $1 billion in the FY12.
In addition private capital flows to local businesspeople have also grown due to the short term foreign currency loans in the forms of buyers’ credit.
-With New Age input