Economic Reporter :
Rapid fall in lending rate in local sources helped trim inflow of foreign loan during the last fiscal year 2015-16, central bank data showed.
According to the Bangladesh Bank (BB) data, the private sector foreign loan increased slightly by 12.54 percent during the last fiscal year compared to that of 73 percent in previous fiscal year.
The total external debt to private sector rose by $980 million to $8.79 billion at the end of June 2016 compared to the rise of $3.29 billion to $7.81 billion during the same period of last year.
A rapid fall in lending rate mostly helped trim down foreign loan borrowing, Mohammed Nurul Amin, Managing Director of Meghna Bank said.
The former president of Association of Bankers Bangladesh said currently, the banking sector has enough liquidity to meet large loan demand.
Moreover, banks are lending at between 8% and 9% which enables businessmen to minimise their business cost. As a result business people are no more interested to take loan from foreign source.
The slow growth of foreign loan is a blessing for local bank business, said Amin.
He said banks will get more business if business individuals take loan from local sources instead of foreign sources which will increase the government income eventually.
The central bank data showed that foreign loan inflow started to grow from the fiscal year 2013-14, reaching $4.52 billion, almost double from $2.82 billion in the previous fiscal year.
The average lending rate in local market was over 13 percent during the year 2013 when borrowers were able to get loan at the maximum 6 percent from foreign sources.
The central bank’s relaxed policy opened up scope to take loan from abroad. In 2015, it relaxed requirement of taking approval for bank guarantees to take foreign loans.
Earlier, BB withdrew the approval requirement for appointing caretaker for bond caretaking service on behalf of foreign lenders.
For the last several years, Bangladesh Bank has been providing the private sector with the scope for taking loans from abroad in order to create a competitive market to cut interest rate on bank loans, said a senior executive of the central bank.
Foreign loan inflow rose faster in FY’15 with reaching $7.81 billion, almost seven times higher within three years from $1.6 billion in FY’12. The faster growth put intense pressure on banks to cut down the lending rate to attract borrowers.
The weighted average lending rate came down to 10.24 percent as of August this year from 13.73 percent in January 2013, according to the BB data.
The lower lending rate accelerated the private sector credit growth to 16.2 percent in August this year which was hovering below 13 percent in last year.
The external debt to public sector increased by 8.67 percent to $32 billion in the fiscal year 2015-16 compared to $29 billion in the previous fiscal year, according to the BB data.
