All is reportedly set for the country's banks to offer funds worth over Tk 777.50 billion as soft loans to businesses hit hard by the ongoing COVID-19 pandemic.
Preparations, according to a media report, on the part of the government, central bank and banks have been almost completed to implement the stimulus packages earlier announced by Prime Minister Sheikh Hasina.
The stimulus packages meant for large, medium and small scale businesses are unlike the ones being made available by many other resourceful countries. Here, banks will disburse the funds. However, more than two-thirds of the funds will be made available by the central bank under six refinance schemes and the banks will disburse the rest from their own resources.
The government's actual involvement in the stimulus packages is estimated to be over Tk40 billion. This is the amount that the government would reimburse as subsidy among banks on account of lower lending rates.
It is, however, worthwhile to note here that it is not possible for the government to offer any fiscal stimulus to businesses because of the resource constraints it has been facing for some time. The prevailing situation with government's revenue generation is very disappointing. Even before the start of the pandemic, the tax revenue earnings were far short of the target. With all economic activities remaining closed for more than a couple of months, the revenue situation has only aggravated further.
The government first came forward with a stimulus package worth Tk50 billion for the apparel industry, the country's largest foreign exchange earner. The borrowers, under the package, will be required to pay interest rate at only 2.0 per cent as against the market rate of 9.0 per cent.
Later, a large assistance programme covering four packages was announced. It involved a total sum of Tk677.50 billion. The packages are carrying varying interest rates, ranging between 2.0 per cent and 4.5 per cent. After a few days yet another package worth Tk50 billion was announced for the agricultural sector. The central bank will provide funds to the banks at a nominal rate of 1.0 per cent and banks will charge 4.0 per cent interest on farmers.
Until now, only one package announced for the apparel sector has gone into operation. A number of units have availed the facility to pay wages to their workers. But because of some complexities, many apparel makers and banks are reportedly finding it difficult to use the package.
Given the preparations made by the central bank and the finance ministry, it does appear that the banks, if they desire so, will be free to utilise funds under different packages. A good number of banks have reportedly inked deals with the central banks to use the refinancing facilities.
However, what is equally important here is the appetite among businesses for funds under the prevailing circumstances and the banks' readiness to offer the same.
Naturally, banks will not offer loans as free meal, no matter how difficult the situation is for businesses, big or small. Banks will have to pay back funds they will be borrowing from the central bank with interest. Besides, its own funds will be involved.
Moreover, banks have genuine reasons for being choosy as far as their lending is concerned under the so-called stimulus packages. A good number of banks are very much troubled by the presence of a large volume of classified loans. Naturally, they would not like to see that volume becomes even bigger.
The government has made it clear that no defaulter will be eligible for funds under the stimulus packages. However, a section of delinquent borrowers do know how to bypass or dodge rules and go on availing funds from banks even under difficult circumstances. Some of them even have the power to bend rules. So, what happens finally remains to be seen.
Banks, for genuine reasons, will be willing to depend on their relationship with the clients as far as disbursement of funds under the stimulus packages is concerned. In that case, they will prefer to follow their set guidelines on loan disbursement.
But, if they come under external pressure in the case of fund disbursement, things might turn sour for them. Such a possibility cannot be ruled out in Bangladesh conditions.
That is why the chairman of the Association of Bankers, Bangladesh (ABB), during a virtual meeting held between Finance Minister AHM Mustafa Kamal, Governor of Bangladesh bank Mr. FazleKabir, Chairman of Bangladesh Association of Banks (BAB) Mr. Nazrul Islam Majumder and top bankers late last week, sought introduction of a credit risk guarantee scheme for loans to be disbursed under the stimulus packages.
One has to admit the fact that the ongoing pandemic has hit all businesses hard. What would finally happen to them remains to be seen. Many might even find it difficult to resume. Some might also stay away from taking loans for fear of inability to repay on time.
Yet making funds available to businesses in adequate volume through stimulus packages might help the government attain twin objectives. The fund flow, on the one hand, would help businesses resume their activities all over again and, on the other, it would infuse sufficient funds into the economy to generate all-essential demand. There could be some inflationary pressure, but under the given circumstances that would be acceptable.
Banks are, in fact, cash-strapped as there has been far more withdrawal of funds than deposit of the same since the shutdown was clamped in the last week of March.
Moreover, the moratorium on repayment of loan instalments until June next has also made the situation worse. The central bank, however, has saved the situation by reducing CRR (cash reserve ratio) by 50 basis points and Repo by 25 basis points. Many tend to believe that the central bank should have also cut the SLR (statutory liquidity ratio) by a big margin to make available more funds to banks.
The government and the central banks have done their respective part to help economy restart again. However, the situation continues to be fluid with none knowing how long the pandemic would last. One can only hope and pray that it would disappear fast from the face of the earth.
