BB's long-term dollar loan facility for exporters will continue

Although the long-term financing facility (LTFF) under World Bank expired, Cenbank has assured that the scheme will continue to serve the manufacturing sector, especially the export-oriented industries.

The facility is largely aimed at providing foreign-currency soft loans –lower interest rates with long tenure-- to exporters, enterprises and other private-sector firms to procure capital machinery, meet expenses related to their installation, and expand or set up new manufacturing industries.

In a circular issued on Sunday (16 July), the central bank announced that a borrower involved in manufacturing will be able to take foreign-exchange funds.

"The maturity of the loans will be three to 10 years, including the grace period which will be determined by banks based on the projected timing of the cash inflows of individual projects. However, the grace period will not be more than one year.

"An indicative pricing range of 180-day average SOFR plus 0.25% to 1.25% would be applicable to the PFIs. The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that replaced the London Interbank Offered Rate," the circular stated.

The $500 million LTFF programme under Financial Sector Support Project (FSSP) helped get access to long-term financing in foreign currency for the capital-intensive manufacturing firms in Bangladesh. This project period was over recently--amid greater needs for the greenback for the import of costly capital goods and raw materials.

To further mitigate the ongoing dollar crisis, Bangladesh Bank introduced the BB-LTFF (Bank Borrowing Long-Term Financing Facility) which is expected to alleviate the pressures faced by borrowers and lenders alike, providing a positive impact on the prevailing dollar crisis.

With these new initiatives in place, the central bank seeks to create a more stable and conducive environment for borrowers and lenders, while addressing the economic challenges posed by the dollar crisis.

Hoping to see a positive impact on the ongoing dollar crunch, a central bank official said, "If you want to take a loan from foreign banks now, as per the rules of the central bank, a maximum SOFR plus 3% interest can be paid. However, the problem occurs when a long-term loan is sought. To address the issue, BB-LTFF has been launched."

According to BB, the banks will determine their own loan interest rates to the borrowers by considering their cost of borrowing and operational expenses, plus a reasonable risk-adjusted spread and profit margin to be in the range of 1% to2% above the cost of funds.

An individual borrower can apply for BB-LTFF for any amount not exceeding a maximum threshold limit of $5 million through a single bank and for any amount not exceeding a maximum threshold of $10 million under syndicated financing through two or more banks.

The central bank said, "Financing of businesses shorter-than-actually-needed tenors is creating required funding mismatch for which the banking sector is experiencing lack of adequate method and instruments to mitigate such long-term funding gap in both local and foreign currencies."

There have been reports that productive sectors face dollar constraints in importing capital goods like machinery and raw materials for which manufacturing throughput contracts to the domino effect on consumer prices and exports.

Apparel-sector leaders, who run the country's up-till-now main export industry, welcome the move which they say will help many enterprises to survive.

But they feel that the rules and regulations to avail of such loans usually remain very tough to comply with.

The financing will be given through banks, known as participating financial institutions, authorised to deal with foreign exchange.

Among other qualifications, banks must have a minimum rating of three or better CAMELS ratings determined by the BB, must have less than 8% non-performing loan, and meet the minimum regulatory capital adequacy requirement to be eligible to participate in the fund.

Emphasising that all banks will not be able to avail of the facility, the official explained that banks having a large number of classified loans will not get loans from here.

"The BB-LTFF loan will be available to those banks which have a reputation for good governance andlow NPL. This means, traders must take the bank's reputation into consideration to receivea loan under the scheme."

The scheme is also expected to facilitate the purchase of ocean-going vessels and specialised transport vehicles supporting the transportation of goods manufactured in the country and establishing businesses that comply with environmental and social standards will be facilitated.

However, financing will not be provided to any project that results in direct economic, social or environmental impacts through land acquisition, involuntary resettlement, impact on indigenous people, and loss of income sources or means of livelihood.