Short-term foreign loans to private sector fall $2.34b in 3 months
Such debts now growing slowly but recovering fast amid continuous increase in SOFR or international base interest rate
Bangladesh's private sector has been compelled to pay off its short-term foreign loans despite the high cost of the US dollar compared to the taka, mainly to avoid additional payments arising from interest rate hikes and geopolitical tension.
In the March quarter, the private sector's short-term foreign debt decreased by $2.34 billion compared to that of December of the previous year, thanks to a continuous increase in the Secured Overnight Financing Rate (SOFR) that serves as the international base interest rate.
The data from the Bangladesh Bank reveals that the outstanding amount of short-term foreign debt in the private sector stood at $16.42 billion in December, but within just three months, it decreased to $14.08 billion.
Currently, the SOFR is over 5% and up to 3.5% additional interest adds to this for international loans, which means that borrowers are now subject to pay the highest 8.5% interest on their short-term foreign loans. "Foreign debt has become expensive due to the rise in the international base interest rate, so borrowers are in a rush to repay their loans. Even many are repaying short-term foreign debts before maturity," explained Bangladesh Bank Spokesperson Md Mezbaul Haque.
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"The rush in repayment, however, increased pressure on our foreign exchange reserves. Borrowers could have avoided such behaviour amid the crisis time," he told The Business Standard.
According to the central bank data, short-term foreign debts decreased the most in buyer's credit – loans taken by exporters from his foreign buyers against work orders. It fell to $8.13 billion in March from $9.57 billion in December.
Bankers say buyers are not giving long-term loans now as before. Earlier, such loans were available for a year but it has come down to 6 months presently. The same trend is noticed in the case of other short-term foreign loans or deferred payments.
"Our payment pressure is decreasing due to the fall in short-term foreign debts, which is good considering the current situation. But, in the long term, it is not okay, because, if we could defer the repayments, we could open more LCs or go for expansion," Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Business Standard.
"There are many types of uncertainty in the global economy, so naturally we are getting a reflection of it in our local economy. Various rating agencies have a negative outlook on our banking industry. We need to gear up and try to do better. If the overall situation improves, we will develop further," he added.
Another senior banker, wishing to remain unnamed, told TBS that banks are facing a dollar crisis, leading them to adopt a cautious approach when it comes to opening import Letters of Credit (LCs). "So, they are now carefully considering future payment pressure and adjusting their LCs accordingly. The situation also discourages borrowers from going for new foreign loans," he added.
The debts growing slowly, recovering fast
The amount of short-term foreign debts grew slowly but recovered fast in the March quarter, the Bangladesh Bank data illustrates. The country's private sector received $6.33 billion in such loans between January and March, while it repaid $8.87 billion in principal and interest.
"We are in a situation where imports have been on the decline. The dollar liquidity situation is not good, as well. As the private sector foreign debt is now decreasing, payment pressure may ease in the coming days," said Mehedi Zaman, deputy managing director of Eastern Bank.
"My observation says the moment [dollar] liquidity comes, the LC opening will increase immediately," he told The Business Standard.
