Demand for domestic loans falls, as importers increasingly opt for buyers’ credit

Importers are increasingly taking foreign exchange loans (buyers’ credit) to fund transactions, resulting in a fall of domestic currency loan demand, say banking sources.

Businessmen say they are going for this funding option to cut costs. 

Dhaka Chamber of Commerce and Industry President Hossain Khaled attributed the trend to low interest rates for buyers’ credit.

“Production costs have increased due to various internal reasons. Entrepreneurs are opting for buyers’ credit to cut costs,” he told bdnews24.com.

This enables businesses to supply commodities at competitive prices, he said.

The latest Bangladesh Bank data show that, till the end of December, 2015, the amount of such loans stood at $3.85 billion, up from $2.98 billion in 2014, and $2.72 billion the year before.

Buyers’ credit is the loan importers take in foreign currency from foreign sources on the basis of local bank guarantees at an interest rate of 6 percent at the most.

They have to seek Bangladesh Bank approval only if the interest exceeds that ceiling.

The central bank had opened up the opportunity for taking such loans in February 2012, resulting in importers making the best of it.

With businesses increasingly seeking foreign currency loans from external sources, the
demand for domestic funding began falling, say bankers.

A senior official of a private bank told bdnews24.com on condition of anonymity that the surplus liquidity in the banking sector had touched Tk 1,200 billion. “This because of a fall in demand for domestic currency loans,” he said.

In November, the average interest charged by local banks was 11.27 percent, while for short-term borrowings as in buyers’ credit the rates vary between 14 and 15 percent, almost double the foreign loan interest rate.