“If BB provides liquidity support, both banks and businesses will benefit”

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September 26, 2021, 10:30 a.m.

Last modification: September 26, 2021, 10:41 AM

BGMEA Vice Chairman Shahidullah Azim (left) and Mutual Trust Bank Managing Director Syed Mahbubur Rahman. Illustration: SCT

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BGMEA Vice Chairman Shahidullah Azim (left) and Mutual Trust Bank Managing Director Syed Mahbubur Rahman. Illustration: SCT

The country’s financial institutions and the RMG industry are under severe financial pressure as they attempt to alleviate the difficult problems created by the pandemic.

Currently, BGMEA is asking for the loan rescheduling facility to be extended for one year, which can be a big challenge for banks. If the government grants their request, what would be the impact on the banks, on the market and on the economy? And why is BGMEA requesting this installation at this time?

Shahidullah Azim, vice chairman of BGMEA and Syed Mahbubur Rahman, managing director of Mutual Trust Bank and former chairman of the Association of Bankers, Bangladesh (ABB) discussed these pressing issues with The Business Standard.

Inam Ahmed: First, tell us about the rationale behind applying for a loan rescheduling facility. Why did you ask this? You are also asking for an extension of the reimbursement period of the salary stimulus plan from 18 months to 36 months. Please tell us more about it.

Shahidul Azim: As you know, in 2020 we had no activity because of the pandemic. Our exports have declined by about $ 6 billion, from $ 34 billion to $ 28 billion. We’re getting orders now, but that doesn’t mean we’re getting the money now. The money we received will become cash after four to six months. That is why we demanded these facilities. This would reduce the size of the installments. We would refund the money from our export profits later. In short, as we had no business the previous year, we asked for the facilities as a help.

Inam: But right now you are getting a lot of orders. You can execute these orders with your current capital. So why are you asking for a loan rescheduling facility?

Azim: It is true that we receive many orders. It’s good for bouncing back from the pandemic crisis. However, we will not get any money until we fulfill the orders. But we have to pay the installments. If the payout size is reduced, it would help the factories. They wouldn’t miss any installments. Otherwise, there is a risk that many payments will not be made.

Inam: This situation is also applicable for other industries in the country. Is it necessary to provide these facilities only to your area? Or do other sectors deserve it as well?

Azim: The Bangladesh Bank and the Ministry of Finance will decide. I can only say that our industry needs facilities. You should not compare the RMG sector with others because we earn 84 percent of foreign exchange. However, if other sectors benefit from these facilities, we do not mind.

Inam: Syed Mahbubur Rahman, there is already concern in the banking sector over the repayment of the stimulus plan. In this situation, how do you see the proposed loan rescheduling extension?

Syed Mahbubur Rahman: What Shahidul Azam said makes a lot of sense. But everyone has some ability. A few months ago there was sufficient liquidity in the market. But the government has started to collect the money.

On the other hand, Bangladesh was buying dollars in the market. But now the government is pumping dollars into the market. As a result of this process, the net liquidity in the market becomes increasingly dry. The stimulus fund has already started to be available from August. Bangladesh bank has already debited about Tk 170 crore from my bank. But I have not yet received the money from the customers. It’s a pressure for my bank.

Many other banks are feeling such pressure. The problem lies mainly in the capacities of the banks. The Bangladesh Bank has set new targets for banks to finance large manufacturers and SMEs. We must disburse these targets. On the one hand, I do not receive any funds and on the other hand, a bank like ours has to shell out around 1000 crore Tk. Maybe 30 percent or even more of the money won’t come back to us. This is where our limit lies.

The Bangladesh Bank said the refinancing plan will run for one year. Now we can give that time. But if we want to expand it, we have to turn to the Bangladesh Bank.

Either way, you know that most banks have a three month deposit. The deposit of more than 50-60 percent is three months, the others are six months, nine months or a year. That is why it will be a huge problem in cash management.

Azim: I understand Mahbubur Rahman’s position. But I read in the news that currently liquidity in banks is very high. So high that they don’t find enough investment opportunities. What I can say on behalf of business people is that we are not saying we will not refund the money. Of course we will. But we need a little more time.

Now it is difficult for me to operate on working capital, pay workers’ wages and continue production. Once the money starts pouring in, those problems will be gone.

Rahman: I have no doubt that real businessmen will reimburse the money. The problem is our limits. Yes, there is liquidity in the market. But most of it is found in government banks and Islamic banks. So we want to help, but it has to be within our limits.

Inam: BGMEA said they are receiving orders but not receiving the money yet. Thus, they requested an extension of rescheduling. On the other hand, banks have many limitations. There are also concerns that some refunds may remain unfulfilled. What can be the solution?

Rahman: We are constantly working with our clients. However, the EDF is extended. And when it comes to exporting, everything is very clear about the amount of debt you have compared to the amount of exports. If the Bangladesh Bank gave us liquidity support, it would help both of us – the banks and the business people.

Azim: That’s right. If the Bangladesh Bank establishes the policy on this basis, there will be no pressure on you. We met with the governor yesterday. We discussed the issues with him.

Rahman: Yes, we need political support. Then we would have no problem.

Inam: Azim Bhai, tell us about the export orders you are currently receiving.

Azim: Many orders have been transferred to Bangladesh due to the military rule in Myanmar in recent months. We have also received orders due to containment in India. The order amount is 20 to 25% higher than our capacity.

Inam: How’s the price?

Azim: Not very well. But since there are a lot of orders, we can choose which one to take and which to cancel. So we learn to say no. We’ve told all the manufacturers that if you don’t agree with the price, try saying no. At the moment there is no other option for the buyers, they have to come to Bangladesh. We need to establish a benchmark price.

Inam: One thing we can see is that the market for the RMG sector is good right now. Good garment factories have good relationships with banks and they are ready to pay back. But currently, they are facing a temporary cash shortage. On the other hand, banks are also friendly to business people. They want to give them money. But the problem is, there is a liquidity crisis that the Bangladesh Bank has to come forward for.

Rahman: Law. We need political support for this. We have a lot of problems. We don’t want to have more problems. We must resolve the crisis with the cooperation of banks, businessmen and the central bank.

Azim: This is exactly the same message that we sent yesterday to the Governor of the Bank of Bangladesh.

Inam: Mahbub Bhai, I want to ask you a question. Bangladesh Bank debited about Tk 175 crore from your bank before you got it from your customers. This puts pressure on your bank. In this situation, what do you foresee in terms of the situation of the banking sector next year?

Rahman: The Bangladesh Bank has debited money this way from many banks. The pressure depends on the performance of the banks. If we see an increase in viral infection again, like in India and the United States with an increase in the number of cases, we may impose the lockdown again.

We have already seen that many SMEs have closed their businesses. So if our customers have any problems, it will affect us as well. What I can say is that we will have to struggle a bit next year. We will try to deal with the situation by rescheduling and taking other actions. But we need the political support of the central bank.

Azim: I want to give good news – in the last seven months we have overtaken Vietnam in RMG exports. They exported $ 17 billion and we exported $ 19 billion. If all goes well, I think we would have a $ 4 billion to $ 5 billion lead on Vietnam.

Rahman: We have the capacity to do it. We want to go hand in hand with our customers in the future.

Inam Ahmed: We will end our discussion here with this optimism in mind. Thank you both for joining us.

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