Businesses take $2b in buyers’ credit in 1yr

Buyers’ credit in the country’s business sector increased heavily in recent months, reaching almost $6 billion at the end of April as local importers were taking the advantage of receiving foreign loans at lower rates of interest.
Buyers’ credit increased by 49.71 per cent to $5.82 billion as of April 30, 2017 from an outstanding amount of $3.89 billion in the corresponding month a year ago, according to the latest Bangladesh Bank data.
Bangladesh Bank officials said that the increased trend in the foreign loan in the form of buyers’ credit might put a risk on the country’s financial sector as such credit would become a burden for the country.
According to BB rules, the importers are now allowed to take buyers’ credit to import capital machinery and industrial raw materials.
The importers usually take the external credit at interest rates within the range of five per cent.
The local businesses are taking the buyers’ credit from the financial institutions of the developed countries which have been facing a slower economic growth for long, a BB official said.
‘Around five per cent interest rate for the buyers’ credit is higher considering the economic trend in the developed countries while the rate is much lower for Bangladesh as the local banks usually offer term loans to the businesspeople with an interest rate ranging from 9 per cent to 15 per cent’, he said.
The BB data showed that the buyers’ credit increased almost in every month in last one year as it stood at $5.52 billion in March, $5.48 billion in February and $5.40 billion in January 2017.
The overdue position in the buyers’ credit in last four months stood at $3.72 million in April, $9.14 million in March, $10.17 million in February and $11.62 million in January 2017.
A BB official told New Age on Thursday that the central bank should discourage the businesspeople from taking buyers’ credit as it would create two types of mismatches — foreign exchange and maturity.
The East Asian countries had faced economic recession in 1997 and 1998 as their external credit increased massively, he said.
The borrowers earn domestic currency from their business but they have to repay the buyers’ credit through foreign currency that may create foreign exchange mismatch, the official explained.
‘The buyers’ credit is a financing on short-term basis. The businesspeople will start getting income from their enterprises after five to six years by taking the foreign loans. But they have to repay the loans within two to three years that may ultimately create a maturity mismatch,’ he said.
The effective interest rate of the buyers’ credit will increase if the local currency depreciates against the US dollar, the official said.
The country’s foreign exchange reserve is now enjoying a robust figure, but a large amount of buyers’ credit may create a dire situation if the reserves fall, he said.

Source: New Age

1 COMMENT

  1. Don’t understand the explanations given by BB. Fact remains, BB & all other local banks are not business friendly, that’s what drives business houses look for funds abroad. BB should learn to adapt to changing rules in world economics.

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