Bank earning slump makes import financing costlier

HM Murtuza | Published: 22:25, Jun 03,2020

 
 

Cost of foreign import financing by the country’s local banks increased up to 2 percentage points in the last couple of months due mainly to a slump in earnings of the banks.

Earnings of all scheduled banks slumped, in most of the cases turned negative in April and May, as the Bangladesh Bank asked the entities to refrain from booking interest earnings for the two months, bankers and BB officials said.

Earlier, most of the foreign banks were issuing credit against imports at around 2.5 per cent to 3 per cent interest.

The fall in earnings of the banks has prompted the overseas banks and financial institutions to charge up to 5 per cent interest for such credit.

Some of the foreign entities were found reluctant in issuing credit against the country’s import settlement.

Amid the coronavirus outbreak in the country, the central bank has introduced a number of relaxations for the bank borrowers as business and economic activities have come almost to a halt.

Under the relaxations, the banks were asked not to downgrade classification any loan till June for repayment failure.

The banks were also asked to suspend interest on all sorts of loans for April and May.

On May 3, a BB circular issued in this connection asked the banks to transfer the suspended interest on loans to an interest-free blocked account.

The banks which had already charged the customers the interest were asked to reverse the sum to the borrowers.

The banks have also implemented 9 per cent ceiling on lending rate since April 1 this year.

The policy moves have hit the banks’ earnings.

‘Almost all the banks would witness negative financial results in April and May,’ Prime Bank managing director and chief executive officer Rahel Ahmed told New Age on Wednesday.

Taking the situation into consideration, the majority of overseas banks have increased the interest rate, said Rahel, also the secretary general of Association of Bankers, Bangladesh.

To some extent, the increased rate of interest was not affordable for the importers, he said.

Besides, some other banks have expressed their reluctance to offer short-term financing, Rahel said.

From the bankers’ point of view, determining the rate of interest considering the risk factors and solvency of the customers is quite normal, he said.

He, however, hoped that the cost of foreign fund would reduce gradually when the banks’ financial health would improve.

Trust Bank managing director Faruq Mainuddin Ahmed also attributed the cause of the negative earnings of the banks to the interest suspension, almost halt in loan recovery and implementation of the single-digit lending rate from April.

Admitting the risk of increased interest rate against import financing due to the earnings plunge, he said that financially strong entities would be less affected.

According to the government estimate, the total amount of suspended interest of the two months stands at Tk 16,549 crore.

Central bank officials and bankers also cautioned that the higher interest payment to the overseas banks against import financing for industrial inputs would ultimately strike the country’s competitiveness on the global market.

Considering the situation, the government should take measures to heal the damages the pandemic has done to the country’s banking sector, they suggested.

More about:

Want stories like this in your inbox?

Sign up to exclusive daily email

Advertisement

 

Advertisement

images