Daily News Recap
Thursday
October 23, 2014
Analyst:
Faiza Farah Tuba
[email protected]
Industry
Almost one-third of the total default loans are now
Banks' 1/3 default
loans stuck in trade
-financing
stuck in trade-financing and banks are in deep trouble with their recovery. The trade-financing covers
credits for export and import, apparel and clothing
and loan against trust receipt (LTR). More than 32
per cent or Tk 131.20 billion of the total Tk 406.4 billion non-performing loans (NPL) were concentrated in trade-financing sectors in 2013, according to the central bank statistics. Officials at
the Bangladesh Bank (BB) have, however, identified such concentration as 'moderate'. It is
quite distant from the upper limit for moderate concentration, they say. But concentration of
loans is higher in the case of business groups than that of sector-wise loans. "Around 40 per
cent of outstanding loans are held by 30 to 40 business groups in Bangladesh," a BB senior
official told the FE. He made the disclosure in reply to a query about the existing trends in loan
concentration into few pockets of the financial sector. The BB official said some business
groups are also involved in the banking business that has heightened the level of risks in tradefinancing. "Default-loan concentration in trade financing increased because of large-scale financial irregularities, such as in Hall-Mark and Bismilla Groups, alongside price fluctuations of commodities in local and global markets," the central banker explained.
The highest level of default loan concentration has taken place in the readymade garment
(RMG) and textile sectors, standing at 16.70 per cent in 2013. It was followed by 7.2 per cent
and 3.5 per cent respectively in import loans and export credits, the BB data showed. The BB
official also said the central bank is now working to ensure credit discipline in the country's
banking sector through strengthening its monitoring and supervision. Country's senior bankers
suggested the authorities concerned should take effective measures to curb such loan concentration immediately. This is seen by them as an imperative for ensuing stability in the baking
system. They also sought cooperation from the country's business community for improving
financial health of the banks through reducing the volume of NPL. "It's not a good sign for the
banking system. It should be addressed immediately to ensure stability in the sector," S.M.
Aminur Rahman, advisor of the Union Bank Limited, told the FE. Regarding the LTR, Mr. Rahman, also former chief executive officer (CEO) and managing director (MD) of the state-owned
Janata Bank Limited, said such loan should be monitored strongly by individual banks as per
terms of conditions.
Talking to the FE correspondent, Nurul Amin, CEO and MD of Meghna Bank Limited, said the
flow of credit increased to the trade-financing sectors recently because of the lower demand for
loans from the real or manufacturing sectors. "Actually, most of banks have invested their funds
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Daily News Recap
in trade financing to meet the growing demand from the businessmen," Mr. Amin, also former
chairman of the Association of Bankers, Bangladesh (ABB), said to explain how the financing
priority shifted. Helal Ahmed Chowdhury, CEO and MD of Pubali Bank Limited, urged the businessmen and bankers to take necessary measures to downsize the volume of NPL to keep the
stability in banking system continuing. The senior bankers' appeal came against the backdrop
of upturn in the NPL in the banking sector in the second quarter of the current calendar year.
The volume of default loans increased 6.58 per cent to Tk 513.44 billion as of the April-June
period of 2014 from Tk 481.72 billion in the previous quarter. During the second quarter, the
share of NPL in the total outstanding loans from the banking system rose to 10.75 per cent from
10.45 per cent in the January-March period of 2014.
Meanwhile, the LTR has been identified as more risk-prone item under the trade-financing areas--and the possibility of recovering such loans is apparently very low. "We see that the possibility of recovering such loans is apparently very low due mainly to the lack of adequate mortgage and fluctuation of prices of unsold goods," another BB official observed. Total LTR stood
at Tk 379.6 billion in 2013, which was 8.1 per cent of total outstanding amount in the banking
system. Of the amount, Tk 19.6 billion turned classified as the money was not repaid timely.
Opening letter of credit (LC) for essential commodities, industrial items and trading purposes
and getting loan against such LC is called LTR. The loan against a trust receipt is provided to a
client when the documents covering an import shipment are given without payment. Under this
system, the clients hold their sales proceeds in trust for the bank, until the loan allowed against
the trust receipt is fully paid. Talking to the FE, a senior executive of a leading private commercial bank (PCB) said a major portion of the LTR was from the country's port city, Chittagong,
where commodity traders took the loans from different banks for a short period. "But later they
failed to pay the loans in time, and at one stage those LTRs converted into term loans," he noted.
The private banker also said the top management of most banks are visiting Chittagong frequently for strengthening their drives for recovery of the piled-up bad loans. The central bank is
conducting a survey to gauge the extent of LTR given by the banks against LCs and identify
malpractices involvrf in it. One kind of evil competition has been observed among different bank
branches in case of LC opening and providing LTR facilities against large groups in order to
meet their profit target at the branch level, according to preliminary findings of the survey. It also
says sometimes bank branches open LC and provide LTR facility as instructed by banks' head
offices. Such directed lending creates a problem for branch managers in making assessment of
their clients. As a result, the LTR is not adjusted and gets defaulted at one stage. The survey
team found out that the large importers (mostly defaulters) are taking stay order from courts. As
a result, they get clean Credit Information Bureau (CIB) report to be eligible for further trade
financing. "This is a big obstacle to the recovery of LTR and term loan in the banking sector," a
survey team member told the FE about tangles. He also said that the team is working to finalise
the survey report by November.
News Source: http://www.thefinancialexpress-bd.com/2014/10/23/62550
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Daily News Recap
BGMEA alleges
unusual delay in un
-stuffing LCL containers
Unusual delay in un-stuffing and delivery of imported raw materials under the less container
load (LCL) system is severely hampering export of readymade garments (RMG), apparel makers and trade body leaders have said. The RMG exporters said un-stuffing of the LCL containers was taking 18-20 days per consignment and the full load containers (FCL) 6-7 days. The
Chittagong Port Authority (CPA) takes 10-12 days extra in the un-stuffing and delivery of the
LCL containers. Due to this unusual delay the exporters sometimes face cancellation of export
orders apart the stock-lot of export consignments. Garment exporters said that import of raw
materials through LCL containers went up in the recent months. But ships carrying LCL containers are berthed only at the CCT (Chittagong Container Terminal) of the port, from where the
berth operator cannot make timely delivery and un-stuffing due to its limitations. "If the LCL containers are berthed at other jetties of general container berths (GCBs) and CCT berths, the unstuffing and delivery will be faster. We urge the concerned authority to berth LCL containers at
the CCT and GCBs," said the Bangladesh Garment Manufacturers and Exporters Association
(BGMEA) in its letter to the chairman of the Chittagong Port Authority on Wednesday. In the
letter BGMEA director Syed Nazrul Islam said that LCL import cargoes increased over the
months compared to FCL import cargoes.
"A good number of RMG exporters are bringing raw materials through LCL containers. They are
facing problems with delivery of the cargoes on time and resultantly the possibility of cancellation of export orders," he said. The Container Freight Stations (CFS), where the LCL containers
are stored, were also lacking adequate skilled workforce, container movers and other handling
equipment, he said. He urged the CPA to announce other sheds as CFS for un-stuffing the LCL
containers for smooth delivery of the raw materials imported for the apparel sector. In another
letter addressed to the CPA chairman, Chittagong Metropolitan Chamber of Commerce and
Industry (CMCCI) vice president AM Mahbub Chowdhury said the garment exporters alleged
that they were facing hazards like unusual delay-10 to 12 days extra-for getting their cargoes
delivered. He urged the CPA chairman to take note of the sufferings of the readymade garment
(RMG) exporters and take necessary steps so that import consignments through LCL containers are delivered smoothly to the consignees.
News Source: http://www.thefinancialexpress-bd.com/2014/10/23/62549
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Daily News Recap
WB plans to raise
funding for BD power sector
The World Bank (WB) is considering increasing funding for the country's power sector and extending fiscal support. The WB is currently financing 36 projects involving US$6.60 billion, according to a latest document of the global lender. Out of the total $6.60 billion financing, power
sector got the highest funding with Rural Electricity Transmission and Distribution project alone
getting $600 million, reports BSS. The projects covering education, health, social safety-net and
local government also got major portion of the funding. The issues of the future large project
financing and budget support were discussed on the sidelines of the annual meetings of the
International Monetary Fund (IMF) and WB Group, held early this month in Washington DC.
The WB funding covers the major projects designed to develop infrastructure, power, agriculture and education sectors, water supply, health services as well as skill and capacity building
of public institutions. The 36 projects include Siddhirganj Power Project, Rural Electricity Transmission and Distribution, Rural Electrification and Renewable Energy Development II, Public
Procurement Reform Project II, IDEA Project, VAT Improvement Project, Local Governance
Support Project II, Private Sector Development Support, Leveraging ICT Growth, Second Rural
Transport Project, Integrated Agriculture Productivity, Strengthening Legislative Oversight and
Strengthening Auditor General's Office.
News Source: http://www.thefinancialexpress-bd.com/2014/10/23/62459
Negotiation for $1b
loan from Russia
likely next month
Bangladesh is set to send a “letter of intent” to Russia for kicking off the USD 1 billion loan negotiation for the Rooppur Nuclear Power Project (RNPP) next month. The Bangladeshi government is yet to know the real price of the reactor and the interest rate for the loan. However, following a meeting of the Joint Coordination Committee (JCC) on October 12-14, both sides have
agreed to timely implement the final construction of the project, which is scheduled to be completed by 2016. “Dr VI Limarenko, chief of Atomstroyexport (ASE), the state-controlled nuclear
power plant design and construction company, which is a subsidiary of the State Atomic Energy
Corporation (Rosatom) of the Russian Federation and Bangladesh Atomic Energy Commission
(BAEC), have agreed to start the negotiation,” RNPP project director Dr Sawkat Akber told The
Independent yesterday. According to the BAEC, Bangladesh has to carry out 62 tests for making the 1,000 x 2 MW nuclear power plant operational. Rosatom will design, build and operate
two units of the RNNP with the Voda Voda Energo Reactor (VVER) technology, and each unit
will have an installed capacity of 1,000 MW. “Bangladesh will start negotiating loans with
Rosatom. Now we are assessing the cost required for the final construction of the power plant.
That is why this meeting is crucial for us. It would be determined by the vendor country,” Akbar
said.
“Work on the mega project would progress in accordance with that time-frame set by the ministries in charge. However, we can say that we are within the time-frame,” Akbar said. “We expect
to start negotiations for the final construction loan by the end of November 2014,” he added.
The primary construction work of this project is expected to begin from mid-October, with a target of building all primary structures, offices and residential facilities by December 2016, he
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Daily News Recap
said. On April 20, the Prime Minister’s Office (PMO) had asked the ministries concerned to
implement the project tasks in accordance with the geo-technical feasibility work of the RNPP
in a transparent manner, so that the safety and security of the project are ensured. Bangladesh signed an agreement to obtain USD 500 million for the study to determine the cost of
setting up the power plant, including the design of the plant, primary construction and human
resource training. But Rosatom succeeded in escalating the cost by another USD 50 million. It
also said the final construction cost of the project would be USD 10 billion, which was more
than double of what was estimated earlier.
Recently, a couple of high-powered teams of experts from Russia visited Dhaka to discuss
about the RNPP, especially the financial aspects of the fourth contract of the project.
“Bangladesh needs to be more cautious in negotiating the final loan agreement. Otherwise, it
would have to pay huge amounts, even though it would procure the same one like India,” a
senior official of the RNPP told The Independent. The main construction might take five to six
years, according to the standard schedule. The plan is to launch RNPP in the early 2020s.
News Source: http://www.theindependentbd.com/index.php?
option=com_content&view=article&id=234485:negotiation-for-1b-loan-from-russia-likely-nextmonth&catid=108:business-finance&Itemid=152
Economy
IMF holds back
loans over delay in
VAT law
The IMF has deferred the release of the sixth instalment of the $1 billion loan to next year
after the government failed to lay out a fresh roadmap for implementing the new VAT law. The
sixth instalment -- around $140 million -- had been scheduled for release in November, following a successful review by the visiting International Monetary Fund mission last month. The
decision on deferral was conveyed to Finance Minister AMA Muhith when he met IMF high
officials at the US capital in the second week of this month, according to finance ministry officials. On the sidelines of the World Bank-IMF annual conference, Muhith held meetings with
higher-ups of the multilateral lenders, where the issue of revenue reforms, especially the implementation of the VAT law, was discussed at length. It was then agreed that the sixth and
last instalments would be released together in April next year, by which time concrete political
commitment about the implementation of the new VAT law has to be given. The government
had earlier committed to the IMF that the new VAT law would come into effect in July 2015,
but due to opposition by influential ministers and the business community, the government
had pushed it back to July 2016. The IMF agreed to it but tagged a condition that the
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Daily News Recap
government would have to issue a formal notice announcing the roll-out of VAT law in July
2016. Muhith, however, did not agree to make such announcements at this point of time, the
officials said. In Washington, IMF officials categorically told Muhith that if a roadmap including
a timeframe was not prepared they would not be able to place a review to the IMF Board for
releasing the instalment. The reason for so much emphasis on VAT reforms is the persistent
revenue shortfall relative to budget expectations, which have been hampering development
spending, the IMF mission said on September 30 at the conclusion of its visit. Meanwhile,
Zahid Hussain, lead economist at WB's Dhaka office, at the launch of Bangladesh Development Update on Tuesday, said structural reforms by various government institutions have
been progressing at a slow pace.
Subsequently, the review for release of the sixth instalment of the loan known as Extended
Credit Facility has been shifted to April this year from November, he said at the press briefing.
The VAT law was prepared after a series of discussions and processes. “It is a little late in the
day now to be debating the necessity of the VAT law -- it has already been passed in parliament.” Hussain further said the government has already bowed to pressure from various quarters once and has deferred the implementation of the law. “It cannot be deferred any further -it has to be implemented.” “It is normal for doubts to arise when a change takes place. But the
government will have to go forward with its commitment.”
Hussain said the new law has two features -- a uniform rate of 15 percent and elimination of
various complications like truncated base, tariff value exemption and so on -- that would simplify the VAT collection process and make it more transparent. The existing VAT law was introduced in 1991 and has gone through many changes on an ad-hoc basis. “It is no longer a
proper VAT law and needs replacing,” the WB economist added. Meanwhile, the National
Board of Revenue is set to form a panel to review the VAT and Supplementary Duty Act 2012
amid demands from businessmen, who allege that their recommendations and concerns were
not reflected in the law. The move comes after Muhith early last month announced a review of
the contentious law.
News Source: http://www.thedailystar.net/business/imf-holds-back-loans-over-delay-in-vat-law
-46930
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Daily News Recap
Q1 investment proposal volume rises
25.05pc
Investment proposals registered with the Board of Investment (BoI) by local and foreign entrepreneurs showed an upward trend in the Q1 (July-September) of the ongoing fiscal year (FY),
2014-15, according to its press release. A total of 345 industrial units have been registered
with the state-owned investment promoter during the aforesaid time with proposals involving
over Tk 200 billion. The amount is 25.05 per cent higher than the previous three months (April
-June) when the total financial volume of the proposals was Tk 160 billion. According to the
BoI, investment proposals made by domestic entrepreneurs in the last three months marked
more than 18 per cent growth against the proposals in the previous quarter. During the JulySeptember period, local investment proposals worth Tk 183 billion have been registered with
the BoI by a total of 318 industrial units. The amount marks 167 per cent rise over that of the
corresponding period of the previous fiscal. According to the press statement, some 12 fully
foreign and 15 joint venture (JV) proposals worth Tk 17.12 billion have been listed with the BoI
in Q1 of this fiscal. "Such investment proposals went up by more than 237 per cent against Tk
5.07 billion in the previous three months," it said.
News Source: http://www.thefinancialexpress-bd.com/2014/10/23/62503
Govt borrowing
from banks rises by
270pc in Q1
The government’s borrowing from the banking system increased by 269.92 per cent in the first
three months and nine days of the current financial year compared with that in the same period of FY14. The government resorted to such increased borrowing from the banking source to
pay salaries and festival bonus to its employees on the occasion of Eid-ul-Azha. The borrowing from the banks by the government stood at Tk 4,632.25 crore between July 1 and October
9 this financial year against Tk 1,252.20 crore the government borrowed in the same period of
the FY14, according to the latest BB data. The government was compelled to borrow from the
banking source in September and the first week of this month as it had to provide a significant
amount of money as salary and festival bonus due to Eid-ul-Azha to its employees, a BB official told New Age on Wednesday. The country celebrated the EId-ul-Azha, one of the two
biggest festivals for Muslims, on October 6. Besides, the revenue collection by National Board
of Revenue has maintained a slower pace in the first three months of this year forcing the
government to meet its instant needs by taking loans from the banking sector, he said.
He said that the government borrowing might increase significantly in FY15 as it has started
the implementation process of the Padma Multipurpose Bridge. The BB data showed that the
government borrowing from the scheduled banks had stood at Tk 7,192.33 crore in the first
three months and nine days of the FY15 while it repaid Tk 2,560.08 crore to the central bank
pushing down its overall bank borrowing to Tk 4,632.25 crore. The official said that the recent
government borrowing from the banks would not put adverse impact on the country’s private
sector as the business people are still maintaining a ‘go-slow policy’ to expand their business
due to political uncertainty. The government borrowing from the banking sector declined by
67.64 per cent in the FY14 compared with that of a rise by 14.50 per cent in the FY13 due to a
slower pace in implementation of the government’s development works amid political unrest.
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Daily News Recap
The government’s borrowing from the banking source stood at Tk 7,950.92 crore in the FY14
against Tk 24,570.98 crore in the FY13. In the 2014-15 fiscal budget, the government aimed
to borrow Tk 31,221 crore from the banking source against Tk 29,982 crore in the FY14. According to the latest central monetary policy for July-December 2014, the BB set the public
sector credit growth at 12.9 per cent by December 2014 and 24.8 per cent by June 2015 in
line with the government requirement.
News Source: http://newagebd.net/60029/govt-borrowing-from-banks-rises-by-270pc-in-q1/
Capital Market
FRA bill to be
placed in next JS
session
The country's capital markets are awaiting a 'take off period' because of investors' confidence
restored in last two years. The chairman of Bangladesh Securities and Exchange Commission
(BSEC) Prof M Khairul Hossain Wednesday said this at the inauguration ceremony of Internet
Trade Fair (ITF) organised by Chittagong Stock Exchange (CSE). "Capital market showed
stable behaviour in last two years as investors' confidence restored. The market is awaiting a
take off period," Mr. Khairul said as special gust of the ceremony. The first ever ITF arranged
by port city bourse started Wednesday at the Institute of Diploma Engineers Auditorium and
will end on Thursday (today). M. A. Mannan MP, state minister for finance and planning, inaugurated the trade fair by executing a dummy buy order of one hundred shares of a listed company. Mr. Mannan said the bill of proposed Financial Reporting Act (FRA) will be placed in the
parliament in next session. "The government wants to ensure it that everyone will abide by the
rules and regulations of the capital market. The government does not want interfere in the
capital market other than the implementation of rules and regulations," Mannan said. In his
speech the BSEC chairman said the securities regulator has achieved self dependency in
terms of man power, infrastructure and financial solvency.
"Internet trading service should un-interrupted. The demand of opening branches of brokerage
firms will be reduced if the internet trading service gets popularity," BSEC chairman Khairul
said. CSE chairman Dr. Muhammad Abdul Mazid said capital markets are playing important
roles in the country's successive development. He said time to time reforms will be needed to
facilitate non-resident Bangladeshis (NRBs) willing to execute share trading through internet.
CSE managing director Syed Sajid Husain said in course of time investors may not need to go
to brokerage houses as their trading will be executed through internet trading service. DSE
managing director Dr. Swapan Jumar Bala, ICB managing director Md. Fayekuzzaman and
the top officials of different banks and financial institutions attended the ITF opening ceremony.
News Source: http://www.thefinancialexpress-bd.com/2014/10/23/62495
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Daily News Recap
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