Most of the private banks are reluctant to provide long-term loans to heavy and large industries, affecting industrialisation and large industrial projects in the country.
Though the government has introduced a single-digit lending rate to encourage investment, the industrial sector is hardly getting any benefit from the system due to the private banks’ reluctance in financing large industrial projects.Even though private banks are taking various facilities including deposits from the government, most of the private banks have no interest in investing money in the industrial sector.
The industrial sector has been a key driver of Bangladesh’s economic growth and job creation over the past few decades. However, lack of easy access to financial support from the banking sector might hamper the pace of the country’s industrial growth.
Experts said inadequacy of private sector investment in industrial production will affect the sector’s capacity to create new jobs. The danger of this sluggish growth in industrial jobs will translate into fewer formal jobs for skilled workers and a sluggish economic growth for the country in the long-term.
In recent years, countries such as China, Indonesia and Vietnam are creating more jobs in industrial sector. As the government is putting efforts into establishing 100 economic zones to flourish industrialisation and generate new jobs, the investors need long-term financial support to establish new industries in those economic zones.
The government approved a large number of banks in the private sector so that they can contribute to the national economy and rapid industrialisation.
But industrialists said private banks are reluctant to provide long-term loans to industries. Even most of the private banks reject or linger the proposals for syndicated loans.Except for six government or specialized banks, most of the country’s 67 banks are in the private sector.
In such a situation, four state-owned banks ---Sonali, Agrani, Janata and Rupali Bank are overburdened by providing long-term loans to industrial projects.
Besides, the state-owned banks have limitations as they have to follow the rules related to the single borrower exposure limit.
Top officials at state-owned banks think that private banks have to come forward alongside the government-run banks to respond to the needs of the private sector for fulfilling the government’s vision for growth and planned industrialisation.
Market insiders said the industrialists have invested huge money to operate their factories during the pandemic.
But now they are facing multifaceted problems in getting support from banks for materializing new investment plans. It has become tough for investors to get long-term loans for industrialisation.
“Most of the banks excluding the state-owned banks are not willing to provide loans,” entrepreneurs said, adding that they have to depend on state-owned banks for long-term loans.
“State-owned banks have limitations while private banks are keen to provide easy loans like SME, personal and consumer loans,” they said.
In terms of industrial loans, private banks are interested in providing working capital, which does not contribute much to establishing new industries. Working capital is mainly used for buying machinery, raw materials or paying salaries.
According to Bangladesh Bank statistics till March, the total volume of loans in the country’s banking system is around Tk 11 lakh crore. Of the amount, Tk 3 lakh crore has been provided to the private sector as long-term loans. Interestingly, a lion portion of the long-term loans has been provided by the state-owned banks.
The government approved private banks to support investment in the private sector, but these banks have terribly failed in supporting new investment in the country.
Former President of FBCCI Abdul Matlub Ahmad said that long-term loans are very crucial for industrial investment and it is very difficult to establish factories without long-term financial support.
“It seems that the private banks have been approved to do business for a short period of time and they are not willing to provide long-term loans,” he said, adding that separate industrial banks need to be established for improving access to long-term loans.
“It is not possible to boost investment in the industrial sector with short-term loans. Without investment in the industrial sector, it will not be possible to sustain the current economic growth,” said Abdul Matlub.
He also said industrialisation is a must to create new jobs and long-term financing is essential to boost industrialisation.