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Banks fear deficit on slow import loan repayment

Sajjadur Rahman
Commercial banks are likely to face a huge deficit this year following a delay in repayment of loans provided for import of commodities.
According to bankers, the deficit would go up to Tk 5,000 crore.
However, the Bangladesh Bank in a circular on Sunday extended the time limit for such loan repayment to 150 days from 60 days, which evoked a mixed reaction among bankers.
On the present situation, ABB (Association of Banks, Bangladesh) President Mahmood Sattar said, "Repayment is getting too slow. We are concerned how we will manage the deficit at the end of the year.”
Besides financing import of essential commodities, banks are also in trouble for funding steel and cotton import, said Sattar, who is also the managing director (MD) of The City Bank.
“The current situation is sending a verey bad message for banks,” said Shahjahan Bhuiyan, managing director of the United Commercial Bank (UCB).
Prices of essential commodities in the international market marked a significant fall in the last couple of months. Wheat that cost $680 a tonne early this year has come down to $200 now. The price of edible oil also declined to $600 from the peak $ 1,200 a tonne.
Steel and cotton prices also reduced significantly in recent months. A tonne | of scrap (old ship), which
was sold at $700, now comes down to $300, while cotton price has declined by one-thirds.
Commercial banks in the country have been growing constantly for the past several years riding on booming import and export business. Last year banks earned a record profit mainly because of the price hike of essentials and other commodities in the international and local markets. But this year, especially since the second half of 2008, prices of the commodities started declining and so the banks' profit.
According to an ABB primary assessment, the deficit may reach Tk 7,000 crore for the delay in loan repayment.
“Some Tk 1,000 crore remains stuck only for funding the imports of steel and the same amount for cotton,” according to Mahmood Sattar.
“We are still unclear about the consequences the banks may face,” said M Fariduddin Ahmad, managing director of Islami Bank Bangladesh.
He admitted that importers are delaying payments for the loss caused by a sharp fall in commodity prices.
Expressing his reservation for the central bank's new timeframe for the import loan repayment, the UCB MD said, “This is not a prudent judgment, as the benefit from it in a long run would be little.”
Shahjahan Bhuiyan also pointed out that some unscrupulous traders might cash in on the new widened time, even they could go for hoarding of essential commodities.