Bangladesh Bank is considering imposing limits on large loans approvals under its newly announced Tk 60,000 crore stimulus package by linking loan amounts to borrowers’ assets and annual sales in an effort to prevent excessive lending and reduce the risk of misuse.
The move comes as the central bank prepares detailed guidelines for the package unveiled by governor Md Mostaqur Rahman on May 24 to revive shuttered factories, expand agricultural production and restore business activity amid sluggish private sector investment and weak economic growth.
Bangladesh Bank officials said that borrowers may not be allowed to receive loans beyond a certain proportion of their assets and annual turnover.
Banks could also be required to nominate representatives to company boards when necessary and continuously monitor sales, export proceeds and the utilisation of funds.
The central bank announced the package with a target of generating 25 lakh jobs directly and indirectly through increased investment and production.
Officials said that banks would have full discretion in approving loans under the upcoming central bank’s guidelines, but would also bear the risks if funds were misused or borrowers defaulted.
Bangladesh Bank spokesperson and executive director Arief Hossain Khan told New Age that the central bank was working on the circular and operational guidelines.
Banks will be asked to conduct strong scrutiny and assessment before sanctioning loans and maintain close monitoring to prevent misuse of funds, he said.
The package includes Tk 41,000 crore to be mobilised by commercial banks from their own resources and another Tk 19,000 crore to be provided through Bangladesh Bank refinancing schemes.
In both cases, borrowers will receive loans at 7 per cent interest as the government will provide a 6 per cent interest subsidy.
A number of bankers, however, expressed concerns about lending at such a low rate while bearing all credit risks.
They said banks could earn comparable returns by investing in government securities, which carry virtually no default risk, whereas loans under the stimulus package could become non-performing if borrowers fail to repay.
However, Mashrur Arefin, chairman of the Association of Bankers Bangladesh (ABB), told New Age that the initiative could benefit both industries and banks by reviving economic activity.
Arefin, also the managing director and CEO of City Bank, said that private sector credit growth has fallen sharply in recent months. This package can help revive the stagnant private sector.
He said the success of the programme would depend on whether funds were channelled to genuine businesses rather than habitual defaulters and politically connected borrowers.
The governor earlier said that lessons from irregularities under the Covid-era stimulus programmes had been incorporated into the new design through stronger monitoring and oversight mechanisms.
Of the Tk 41,000 crore component, Tk 20,000 crore has been earmarked for reopening closed industrial and service-sector units, Tk 10,000 crore for agriculture and rural economic activities, Tk 5,000 crore for cottage, micro, small and medium enterprises, and Tk 3,000 crore each for export diversification and the development of northern Bangladesh as an agricultural hub.
The separate Tk 19,000 crore refinancing package includes Tk 5,000 crore each for pre-shipment export credit and cottage and micro enterprises, Tk 2,000 crore each for leather goods and frozen fish exports, and Tk 1,000 crore each for youth employment, rural economic activities, green investments and overseas employment financing.
It also includes Tk 500 crore each for startups and the creative economy.
The package comes at a time when private sector credit growth remains near historic lows and businesses continue to struggle with high borrowing costs, energy shortages and weak demand.
Bangladesh Bank data also show that defaulted loans have reached record highs in recent years amid allegations of large-scale loan scams, political influence and weak governance in the banking sector, underscoring the importance of ensuring that the latest stimulus funds are properly utilised.
