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BB lowers cost of funds for exporters

Interest rate on loans from Export Development Fund to go down by 1 percentage point

Star Business Report
The central bank yesterday slashed interest rate on loans from its Export Development Fund (EDF) by 1 percentage point to help exporters get low-cost funds amid the ongoing political unrest.
With the move, commercial banks will now charge exporters LIBOR (London Interbank Offered Rate) plus 1.5 percent interest, meaning the cost of loans will remain within 2 percent as the six-month LIBOR rate is 0.35 percent now.
LIBOR is the rate at what banks charge each other for short-term loans in the London interbank market. It also serves as a global benchmark for short-term interest rates. The BB will follow the LIBOR because the loans will be given in foreign currency.
"The central bank has reduced the interest rates on EDF loans to help exporters cope with the ongoing shipment disruptions," SKSur Chowdhury, Bangladesh Bank's deputy governor, told reporters after a meeting with business leaders at the BB headquarters in Dhaka.
The decision came into effect yesterday and will remain valid for the next six months, according to a BB notice.
"We must thank the BB for reducing the interest rate. It's a gesture of goodwill," said Atiqul Islam, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
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Businesses have been going through a very tough time with shutdowns and blockades since the beginning of the year. Garment exporters, who accounted for more than 75 percent of the country's total exports at $27 billion in fiscal 2012-13, faced additional difficulties with pressures from buyers to maintain safe working conditions after some factory' accidents.
Due to the ongoing political deadlock, manufacturers and exporters are facing challenges to maintain competitiveness in overseas trade.
In a meeting last week, the BCMEA requested chief executive officers of commercial banks to provide some facilities, including slashing lending rates, blocking interest for two years and relaxing loan classification and rescheduling rules.
In response to the plea, the BB will now charge LIBOR plus 0.5 percent, instead of existing 1 percent, to commercial banks, which will charge borrowers LIBOR plus 1.5 percent, instead of 2.5 percent.
Kazi Akram Uddin Ahmed, president of the Federation of Bangladesh Chambers of Commerce and Industry, welcomed the move of the central bank.
But he said, if the BB relaxes loan rules or reduces interest rates, it will affect the banking sector, especially the private banks. "So, we want the government to slash corporate tax by 2.5 percentage points to 40 percent," he added.
On the other demands from the business community, Chowdhury' of the BB said many' of their issues depend on bank-client relationship.
"It's not possible for the BB to relax loan classification and rescheduling rules. It may be considered on a case-to-case basis," he added.
The central bank formed EDF in 1989 with $31.2 million to provide foreign exchange to help meet the import requirements of non-traditional manufactured items. Then this facility was available to the non-traditional exporters, particularly new and diversified exporters. Over the years, the facility has been extended to apparel and other exporters. The BB has enhanced the fund in different phases and the present balance of EDF stands at $1 billion.
A single party can get maximum $12 million loan under the EDF. The loans are payable by the banks upon receipt of exports proceeds within 180 days from the date of disbursement, extendable by the BB up to 270 days in case of a longer period for repatriation of export proceeds.