Foreign borrowing by private corporate bodies dropped drastically during the first half of this calendar year, as they turned back to cheaper domestic credits.
The local firms obtained approval for taking US$396.95 million during January- June period of the current year. The endorsed debt amount was $1414.76 million (over 1.414 billion) during January-June 2015 period, according to Board of Investment (BoI) statistics.
Many familiar with the developments say local firms are now showing interest in domestic sources of credits which are available at comparatively low rates of interest.
The central bank's official data show credits to the private sector having increased in recent times, which implies that local firms are borrowing more from local banking sources.
Domestic credits recorded an increase by Tk 802.46 billion or 11.82 per cent (y-o-y) at the end of April 2016 against the increase by Tk 604.20 billion or 9.76 per cent at the end of April 2015, according to the Bangladesh Bank.
Credit flow into to the private sector recorded a growth of 15.59 per cent while to the public sector decreased 5.53 per cent in April 2016 compared to the same month of the previous year.
Some analysts attribute the fall, measured up until June 2016, to lower lending rates in term loans and other short-term credits from domestic sources.
Ahsan H Mansur, executive director at the local private think-tank PRI, said local corporate firms are now getting cheap funds from domestic sources, resulting in a fall in borrowing from the overseas sources.
"Those local firms that are borrowing from overseas sources do usually have better credit ratings and they are now taking its advantages from local sources," said Dr Mansur.
He noted that the good corporate borrowers are even borrowing it at 5-6 per cent.
It stands out to be a rock-bottom rate now as local banks earlier used to charge as high as 13-14 per cent, or more.
The overseas loans usually carry 4.5 per cent rate of interest including LIBOR. If it [rate of interest] rises, a special approval is required from the Board of Investment (BoI).
The investment board also sees the same reason behind the fall in the overseas borrowing.
But they say the situation changes from time to time.
Nabhash Chandra Mandal, a member of the executive council of the BoI, told the FE that the local lending rates are now almost of single-digit, and this is the key reason.
He said many good borrowers are getting loans at less than 3.0 per cent interest from local sources.
However, most of the offshore borrowings went to telecommunications, largely for bankrolling 3G networks.
Power sectors, readymade garment factories and pharmaceutical plants were also leading borrowers from the sources beyond borders.
The growing steel industry, local food and commodity players also borrowed from the foreign sources.
However, local private firms say they prefer overseas borrowing at a time when they need large funds to meet their demands as the local financial institutions cannot afford it.
They also said the existing comparatively low lending rates are cheering them back into borrowing from the local banks.
They mainly do it by reducing the number of capital-machinery imports.
The commercial borrowing is meant for import of capital machinery needed for productive purposes.
During the January-December 2015 period, 131 applications from private firms seeking to borrow foreign funds worth $1.88 billion had been approved.
A high-powered committee headed by the Governor of Bangladesh Bank appraises and approves borrowing from overseas sources. Prior to giving approval, the central bank and the BoI examine all relevant issues in detail.
source: The Financial Express
