Big internal consumption remains a blessing for Bangladesh

The call money rate has increased a bit in our banking channel. I would not, however, call it a liquidity crisis – although many banks are experiencing a liquidity pressure at the moment.

Those who have mismatched the balance sheet have increased the call money rate to fix the anomalies. The risk increases if balance sheets are mismatched, so bankers need to keep an eye on this. Otherwise, other healthy banks also have to face the same problem.

Being a country with a large population, one of the great advantages of Bangladesh is that there is large domestic consumption. It is a blessing for those who meet this consumption desire. At present, our growth in the entire export sector, including garments, has been good. Overall, we are in a positive position.

Post-Covid, investors have begun working on new ventures. The hope is that the economy will recover soon. From that point of view, I would say credit growth in the private sector is also good. Investments in new factories and businesses have increased due to increasing demand in the market. At the same time, due to the rise in the value of the dollar, more credit has to be given to acquire the same amount of commodities as before this change.

The goal of our monetary policy on credit growth in the private sector has not been achieved so far. It is likely, however, that a jump will be registered next June. With this in mind, I think the goal can be achieved this financial year. All things considered, this can be termed a good beginning and also a good time for future investments.

It is said credit is going to both trading and investment sectors. In my opinion, however, more credit is going to export-oriented industries, including garments and textiles, than to the trading sector.

Many are now taking credit in the manufacturing sector for making cloth from yarn. Buyer demand is influencing this trend. They are giving less time to make the final product.

It is important to note that raw materials for these products take a long time to be imported from China or other countries. In order to save time, buyers are insisting that we produce yarn in our country. This way you don't have to waste time waiting for imports of cloth from other countries. Furthermore, there are also some restrictions on imports from China. At this time, we have the opportunity to take advantage of the value chains in the garment sector, where we can contribute to every step except cotton.

Generally, the Internal Rate of Return (IRR) is considered important when making any investment decision. As the interest rate on a loan is still in single digits, it signals that the IRR is better in our country, meaning the borrowing situation is good. As the situation is in our favour, the demand for loans has also increased, both for industries and investments. If we analyse imports, we can see that 40% of it is raw materials for production of different products. This means that the manufacturing and investment sectors are quite active and the use of loans in these sectors is also good.

However, banks may be under pressure to increase such long-term loans. It often takes 10-12 years to repay a loan with a 6-7 repayment period. For those who need a loan of over Tk50 crore, they should go to the capital market. Industries with more reliance on commercial banks are not becoming viable. Commercial banks are suited for working capital and short-term loans. For long-term loans, investors should turn to the capital market. This way, the market will be healthier when investors go there and those who want to invest long-term through bonds or shares also get the opportunity.

Our main obstacle to achieving this is reluctance. Industrial groups want to keep the company's share holdings in their hands and reduce accountability. For this reason, they are less inclined to go to the capital market.

The growth factors that we have, including GDP and consumption behaviour, are such that no business is going to fail in their investment.

Failures happen only for cash flow mismanagement. So, the structural adjustment will be better by going to the capital market to get the loans.

Banks should also take some precautionary measures. First, the liquidity profile created by the investment and deposit maturity mismatch in the bank's balance sheet should be kept at a tolerable level as much as possible. Second, it is important to increase lending to SMEs and the retail sector, not just to large corporations. This will create a loan balance. Because, if the small capital distribution is more spread out, the growth pattern is better, while the economic growth is also sustainable.

Furthermore, the loans are also secure. In addition, every bank should follow the balance sheet management. The stability of an organisation is better if the rules and regulations given by the central bank are followed.

At the end of the day, it is better to follow the formula of risk undertaking. This is because, even if there is a potential gain in short-term risk taking, it can be a loss for the bank if it does not take long-term risk taking into consideration.

Md Arfan Ali is the president and managing director of Bank Asia