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Private sector foreign loans a latent danger

Analysts say as BIBM launches report

Star Business Report
Misuse of funds and rising exchange rate are pushing many short-term foreign loans into the overdue territory and in so doing posing a concern for the economy, analysts said yesterday.
In 2017, short-term foreign borrowing, which tends to be for less than three years, stood at $8.44 billon, which was 74.5 percent of the total private sector external borrowing for the year.
As a whole, private borrowing from external sources was 35 percent of the foreign currency reserves in 2017, according to a research paper titled "Private Commercial Borrowing from Foreign Sources in Bangladesh: An Anatomy" by the Bangladesh Institute of Bank Management (BIBM).
"Though the reserves at present can attend to the external liabilities, the rising demand for short-term foreign loans may put pressure on the reserves," said Prashanta Kumar Banerjee, professor and director of BIBM.
Between 2013 and 2017, the annual growth rate of shortterm external loans was 35.15 percent. For long-term borrowing, the rate was 6.23 percent.
Banerjee's comments came at the unveiling of the paper at a seminar organised by the BIBM at its auditorium in the capital.
Instead of using the foreign loans for business purposes, many borrowers seem to service their local loans with the funds, said Helal Ahmed Chowdhury, supernumerary professor of the BIBM.
"The overdue short-term foreign loan amount is increasing and heading towards default due to diversion of funds," headded.
The higher demand for short term borrowing is coming from importers, according to the report. Of the $8.44 billon, $18.67 million has gone into the overdue position in February, up 83.58 percent year-on-year.
The overdue amount, all of which is on the account of importers, poses a greater danger as they repay loans in foreign currency but they earn in local currency.
So when they repay, they have to buy
foreign currency from the local market, causing exchange rate fluctuations.
The Bangladesh Bank relaxed the rule of foreign borrowings following demands from exporters, said Abu Hena Mohd Razee Hassan, deputy governor of the central bank.
*At the beginning there were some misuses of foreign borrowings. But now, it is being monitored strictly,* he added.