38 banks seek Tk28,000cr in stimulus funds for struggling businesses

Under the agreed terms, Bangladesh Bank will pay fund-providing banks a rate tied to its policy rate plus 50 basis points, up from the 9% originally proposed

File image of Bangladesh Bank. Photo: BSS

Highlights:

38 banks seek over Tk28,000 crore under Bangladesh Bank’s stimulus scheme
Loan disbursements are set to begin from September 1
Funding rate agreed at policy rate plus 50 basis points
Tk41,000 crore refinancing fund targets struggling industries and key sectors
Banks remain concerned about liquidity support and accounting treatment
Stimulus aims to revive industries and create 25 lakh jobs

Thirty-eight banks have signed agreements with Bangladesh Bank, seeking over Tk28,000 crore under its stimulus scheme, a senior central bank official told The Business Standard on Sunday.

The central bank has cleared the path for loan disbursements to begin on 1 September after resolving an interest rate dispute with commercial banks over funding for the Tk41,000 crore refinancing facility, part of a wider Tk60,000 crore package unveiled in May to reopen closed and struggling mills and factories.

Under the agreed terms, Bangladesh Bank will pay fund-providing banks a rate tied to its policy rate plus 50 basis points, up from the 9% originally proposed. Treasury officials at several banks confirmed the earlier rate had been a key sticking point.

By pegging the rate to the policy rate plus 50 bps, officials said, the central bank can automatically adjust borrowing costs alongside future policy changes. Following a 50-bps cut on 30 July – its first in nearly two years – the policy rate now stands at 9.5%, putting the facility’s current rate at 10%.

Funds will be drawn down gradually over three years rather than disbursed all at once, a senior central banker said. For instance, if a bank requests Tk100 crore for a client, Bangladesh Bank will pair the request with a surplus-liquidity lender able to meet that timeframe – a structure officials say refutes claims that bank funds will remain tied up for prolonged periods.

Previous attempts to resolve the rate dispute, including two meetings chaired by Deputy Governor Dr Kabir Ahmed with treasury heads split over advance-deposit ratios of 60-70% and 70-80%, ended without consensus.

Beyond the interest rate, treasury officials raised concern that funds lent under the scheme will carry no liquidity backstop, as Bangladesh Bank has confirmed that holdings under the package cannot be used as collateral for repo financing during cash shortages.

Bankers are also unsure how to record the funds on their books. “Banks borrow from Bangladesh Bank through repo, pledging government securities as collateral. The central bank, in turn, borrows cash from commercial banks through reverse repo. But this is not that,” said the treasury head of a leading private bank.

Another senior treasury official said that banks earn an agreed return on investments in treasury bills and bonds managed by the central bank, but the funds going to Bangladesh Bank under this scheme are not an investment either, raising a basic classification question: should banks record it as lending to the central bank?

“Maybe it would be a placement with Bangladesh Bank,” a third treasury official told TBS.

Key structure of the Tk60,000cr package

Of the total package, Tk41,000 crore will be sourced as a refinancing fund from banks with surplus liquidity. Of that, Tk20,000 crore is earmarked to reopen closed industrial and service-sector businesses hit by the banking crisis, energy shortages, and capital constraints.

A further Tk5,000 crore is set aside for SMEs, Tk10,000 crore for agriculture and the rural economy, Tk3,000 crore for agri-hubs, and Tk3,000 crore for export diversification.

The remaining Tk19,000 crore will be provided directly by Bangladesh Bank, backed by government guarantees. The central bank will use this portion for pre-shipment credit refinancing, loans for cottage and micro enterprises through the Palli Karma-Sahayak Foundation, overseas employment loans through Probashi Kallyan Bank, loans for the unemployed through Karma Sangsthan Bank, and rural credit through Ansar-VDP Unnayan Bank.

Interest rates

Bangladesh Bank will pay fund-providing banks at the repo rate plus 50 bps – currently 10%. But when a bank draws funds for its clients, Bangladesh Bank will charge it only 4%, and the bank in turn will charge borrowers a maximum of 9%.

Rates will be more concessional for select categories – start-ups, for instance, can access funds at as low as 4% – with the government covering the gap through a budgetary subsidy, according to Bangladesh Bank officials.

Core objectives of the stimulus

The stimulus is aimed chiefly at reopening closed and struggling mills and factories to revive demand and employment, which has slowed over the past few years. By reviving industrial production, the central bank estimates the package could create around 25 lakh jobs in the private sector.

Source: The Business Standard