December 26, 2023
DHAKA – The devaluation of the taka has squeezed the import capacity of industries, particularly essential commodity importers and exporters.
As dollars become more expensive, they can buy less of the greenback with the same amount of loans from banks. Consequently, they can import less goods.
Under the circumstances, edible oil importers and processors have urged the Bangladesh Bank to relax the single borrower exposure limit, which restricts banks from putting all their funds in one entity.
The Bangladesh Vegetable Oil Refiners’ and Vanaspati Manufacturers’ Association (BVOVMA) sent a letter to Bangladesh Bank Governor Abdur Rouf Talukder on November 12 saying their capacity to import decreased nearly 50 percent because of the devaluation of the taka.
The trade body said that the local currency devalued by 45.34 percent against the US dollar in the last two years, which adversely impacted import of goods.
As per the Bank Company (Amendment) Act, 2023, the aggregate principal amount of funded and non-funded exposure to a single person or counterparty or a group shall not exceed 25 percent of the capital of a bank at any point in time.
And the aggregate principal amount of funded exposure to a single person or counterparty or a group shall not exceed 15 percent of the capital at any point of time, according to the central bank’s rules.
Importers of commodities and other goods said that they were unable to get bank loans because most of them have exceeded the single borrower exposure limit due to the local currency weakening sharply against the US dollar.
The BVOVMA said in the letter that depreciation of the taka had led to 31.20 percent lower worth of goods being imported than before.
The price of essential goods and commodities has increased by 18-20 percent in the international market due to the Russia-Ukraine war, which is also negatively impacting imports, showed the letter.
The letter, signed by Md Hasan, president of the association, said the price of essential commodities is increasing gradually as supply is lagging behind demand.
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) also requested the BB to revise the single borrower exposure limit on behalf of BVOVMA.
The apex trade body sent a letter signed by its president Mahbubul Alam to Abdur Rouf Talukder on November 16.
It said that the import of essential industrial raw materials had been disrupted because of the decreased loan limit, which is negatively impacting manufacturing industries and reducing economic activities.
Shafiul Ather Taslim, director for finance and operations at TK Group, one of the largest cooking oil processors, said the sector is suffering due to the taka’s devaluation.
The central bank should revise the limit immediately. Otherwise the import of essential goods and commodities will fall drastically, he added.
The Ministry of Commerce on November 20 asked the central bank to revise the limit on behalf of BVOVMA.
Md Shahidullah Azim, vice-president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told The Daily Star that not only essential goods importers, but also export-oriented industries had been adversely impacted because of the decreased single borrower exposure limit.
Azim, also managing director of Classic Fashion Concept Ltd, said that the garment sector is now enduring a difficult time due to ongoing economic conditions, including fund crisis.
Anis A Khan, former chairman of the Association of Bankers, Bangladesh (ABB) told The Daily Star that the central bank may consider the issue for a short period of time since edible oil is a staple food item.
But after that period, the banking regulator will have to review the issue, as per the senior banker.
However, he urged the central bank to be strict and ensure no defaulters or ill-motivated companies can avail the facilities.
Contacted, Bangladesh Bank executive director and spokesperson Md Mezbaul Haque told The Daily Star that he was unaware of any letters regarding such issues.
However, a senior official of the central bank seeking anonymity said that the banking regulator had discussed the issue.
He added that it would not be possible for the central bank to revise the single borrower exposure limit because it is a part of the Bank Company Act.
He said, if needed, the BB governor could revise the funded exposure from 15 percent to 20 percent.
The central bank may permit the extension of funded exposure on a case-to-case basis but not for all borrowers, as per the official.
The Bangladesh Bank on November 8 last year relaxed the highest 25 percent single borrower exposure limit for five years for coal-based power producing companies.