Bank loans for tanners declining

The leather sector is facing a financing crunch as bank loans for procuring rawhide during Eid-ul-Azha, a peak season for the industry, continue to decline.

This comes at a time when there is a rising demand for financing among tanners.

This year, state-run and private commercial banks have set a lower target for disbursing loans, amounting to Tk 2.59 billion among the tanners. This is to support them in purchasing rawhide of sacrificial animals during Eid-ul-Azha, the second-largest Muslim festival.

This target is significantly lower, by Tk 1.84 billion, compared to last year’s Tk 4.43 billion. In 2021 and 2020, the targets were even higher, at Tk 5.83 billion and Tk 6.44 billion respectively.

Tanners claim that despite the banks announcing substantial loan distribution targets annually, they receive only a fraction of the promised loans. However, bank officials have cited the increasing trend of loan defaults as the primary reason for lowering the credit targets. According to central bank data, one-third of the loans have been defaulted.

The data also reveals that a mere dozen commercial banks provide loans to tanneries, with state-run banks constituting 90 percent of these. The actual loan disbursement has consistently been well below the set targets.

For instance, in 2020, only Tk 650 million was disbursed against a commitment of Tk 6.45 billion, and out of this, Tk 450 million has already been refunded.

Furthermore, tanners expressed concerns as banks often offset a significant portion of the loans as dues, resulting in an even lower real disbursement. This has raised fears among tanners that rawhide prices may plummet this year due to the shrinking financial support.

Tanners rely heavily on Eid-ul-Azha for procuring rawhide, as nearly 70 percent of their annual requirement is collected during this period. The leather collected during this festival is also known for its high quality. This year, tanners aim to collect 85 lakh pieces of rawhide.

However, the industry has experienced a sharp decline in rawhide prices in recent years, leading to extensive dumping of this valuable export item. The lack of financing is held responsible for this downturn.

Additionally, allegations have surfaced of cash not being made available to field-level animal skin traders, depriving sellers of fair prices. Industry insiders suggest that middlemen exploit this situation to their advantage.

“Every year some banks announce loan disbursement targets before the festival, which is also published in the media. But how much of the money do the tanners actually receive?” questioned Bangladesh Tanners Association president Shahin Ahmed.

He believes that it's a form of deceit when only 10 percent of the allocated funds are distributed. He also pointed out that loans are typically extended only to financially stable tanners, while a few with loan dues receive fresh loans after rescheduling their previous debts.

“Actually, they don’t get any new loan. It will be tough to overcome the sector's crisis if at least Tk 5 billion in new loans are not disbursed, considering the loans arrears as a block,” he added.

For this year’s loan target of Tk 2.59 billion, state-owned Janata Bank has committed to disbursing the highest amount of Tk 1 billion. Other state banks such as Agrani Bank will provide Tk 800 million, Rupali Bank Tk 300 million, Sonali Bank Tk 250 million, and BASIC Bank Tk 50 million.

As for private banks, Al-Arafah Islami Bank will contribute Tk 65 million, Islami Bank will disburse Tk 53.1 million against its last year’s lofty target of Tk 1.7 billion. NCC Bank will allocate Tk 20 million, The City Bank Tk 2 billion, and Bangladesh Commerce Bank Tk 50 million.

Additionally, Southeast Bank has communicated to Bangladesh Bank that they will provide loans based on the actual demands of customers.