Consumers again open purse as confidence returns

In October-November, Sara Lifestyle, a sister concern of Snowtex, experienced sales 10 times higher than in the same period last year.

After a long covid-hibernation in the pandemic, consumers indulge in a spending spree to make up for the long period of abstinence contributing to this significant increase in sales.

SM Khaled, managing director of Snowtex, told The Business Standard that sales of winter garments increased more than what they had anticipated for this season.

Sales of other clothing, such as women's outfits, denim shirts, and pants have also come back to what it was in normal times from August when Eid-ul-Adha was celebrated, he added. 

The company, which has five outlets in Dhaka city, is now planning to open five more this year.

The consumers' moving away from the Covid-induced behaviour – only spending on the very necessary – has also been reflected in bank financing as well, with consumer loans having grown by 12% year-on-year in the July-September quarter.

The loan growth was negative 3% in the preceding quarter, according to data from the Bangladesh Bank.

Industry insiders said people have now come back to regular spending with economic activities gaining traction after the pandemic-driven slowdown resulting in a dramatic increase in consumer finance.  

Banks with high excess liquidity are now offering consumer loans at the lowest rate in recent years.

Similar to clothing business, other businesses also see a turnaround in sales with consumers crowding into shoe shops and fast food joints.

Businesses are also offering huge discounts to attract more business.

For instance, Bata shoes offered a 50% discount last month and its shoe store in the Bashundhara City shopping Complex experienced a large turnout of customers.

Businesspeople said consumer spending is gradually returning to normal.

Selim H Rahman, managing director of Hatil Furniture, told TBS that sales of goods for the government's ongoing projects have returned to normal.

Sales of high-end products have recovered 80% of normal times while it is not more than 60% when it comes to general commodities. But demand has been on the rise after the shutdown was lifted.

Raziur Rahman, Singer Bangladesh's head of marketing communication, told TBS, "People are buying products to make life easier at home."

Washing machines, microwave and electric ovens, refrigerators, and computers – all see a steady rise in demand since the shutdown was lifted, he informed.

Abdul Haque, president of Bangladesh Reconditioned Vehicles Importers Association, is happy to see a good number of families buying cars since the shutdown ended.

"Car sales are still not equal to the same period of the last few years but it has been going up, even though moderately, since June," he said.

Banks are also in the race to encourage customers to spend by offering lucrative deals.

For instance, Dutch-Bangla Bank, one of the country's largest private banks – as part of its marketing strategy – is sending text messages to all its customers, offering personal, home, and car loans at 8.5% rate.

The average interest rate for consumer loans came down to 7.57% in October as most banks are offering a 7% to 8% interest rate, according to data from the central bank. Banks are offering discounts for card users too.

For instance, the City Bank is offering a 10% discount on air tickets purchased with its credit cards from Qatar Airways and complimentary buffets at several restaurants.

Banks are witnessing a record rise in savings globally – a result of cut in consumer spending coupled with restrictions on movement and gathering as shutdowns were enforced in the pandemic period.

This global trend is also being reflected in Bangladeshi banks.

In September this year, the banking sector saw a record high rate of savings in recent history, reflecting a slump in consumption, which would have a negative impact on hopes of a faster economic recovery.

The total deposits increased by around Tk1 lakh crore in the six months from March to September this year. During the corresponding period of last year, the volume of increase was Tk70,000 crore.

The banking sector saw an excess deposit of Tk30,000 crore during the pandemic, according to data from the central bank.

Amid this situation, in October, the central bank came up with policy support for banks to boost consumer loans by cutting down provisioning requirements against unclassified consumer loans.

The move prompted banks to emphasise marketing for consumer loan products to attract customers to avail such loans at a low interest rate even amid the pandemic.

The total consumer loans stood at Tk72,500 crore at the end of September from Tk66,500 crore in June, central bank data shows.

People's spending with credit cards also reflects their turn around to normalcy as such transactions have returned to the level of normal times in recent months, said Mashrur Arefin, managing director of the City Bank.

Loan repayment also increased up to 90%, indicating business recovery, he added.

Bangladesh Bank data shows that transactions with credit cards was Tk1,381 crore in October, up from an average transaction amounting to Tk1,000 crore in the pre-Covid period.

The Bangladesh Bank in its quarterly report for July-September said large and medium scale manufacturing output experienced an upsurge, reflecting strengthened export demand.

The service sector achieved a robust and fair performance supported by considerable growth in bank credit to trade and commerce and consumer finance along with the increased volume of cargo handled through ports, said the report.

Strong growth in remittance inflows, rise in imports, recovery in private sector credit growth, and high government spending for implementing the stimulus packages supported domestic demand, said the report.

The central bank is optimistic that economic activities during this quarter will continue in the coming quarters.

Centre for Policy Dialogue (CPD) Executive Director Dr Fahmida Khatun sees the rise in consumer demand as a sign of recovery from economic woes in the country.

"People's jobs and income are being restored. In many cases, business is growing. At this time, a lot of products have been sold through e-commerce. It is a reflection of the recovery of economy," she said.

She observed that low-income people spend almost all of their income. For the past three months, they have not been able to make any purchases outside of their essentials.

They have again turned to shopping as their income-generating activities have got underway.

The CPD researcher maintained that a huge consumer class is a major force in Bangladesh's economy, and a great way to recover from any economic downturn is to increase aggregate demand.

Urging some cautions in the distribution of consumer loans at this time, the economist said the amount of term loans and industrial loans has decreased as new investments have almost come to a halt.

"However, there should be a limit on how much a commercial bank can lend to a consumer. There will be some risks if consumer loans are distributed outside of the limit."

Economic recovery improved purchasing power of consumers, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

Moreover, the relaxed provisioning rule contributed to rising consumer loans, he added.

Banks should be cautious about such lending as there is a possibility of the Covid-19 second wave and an uncertainty over a quick availability of vaccines which might hurt economic activities, he said.

Excess liquidity helped banks lend consumer loans at a low cost, said Selim RF Hussain, managing director of Brac Bank.

He said banks experienced good business recovery in recent months and by June of next year business activities will make a complete recovery.