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The Bangladesh Bank has taken an initiative to scrap the 9 per cent interest rate ceiling and introduce a market-based interest rate on loans.

“We are working on the development of a market-based reference rate. On top of that, we will be giving a corridor for the lending rates,” said Bangladesh Bank Governor Abdur Rouf Talukder yesterday.

He came up with the remarks on the second day of the Bangladesh Business Summit at the Bangabandhu International Conference Center in the capital.

The Federation of the Bangladesh Chambers of Commerce and Industry organised the three-day event in cooperation with the foreign and commerce ministries and the Bangladesh Investment Development Authority.

Contacted, a BB official explained the governor’s comment, saying that the central bank might initially set a reference rate on loans based on the demand for credit from borrowers.

“Non-performing loans (NPLs) are like cancer. If you can’t cure it within the shortest possible time, you will die. And there is no other conclusion,” said Ali Reza Iftekhar, a former chairman of the Association of Bankers

“We will then set a range of a particular corridor of interest rates on the reference rate that will be applicable to borrowers,” he said.

For instance, if the reference rate is set at 9 per cent, the corridor might be in the range of 2 to 3 per cent. This means banks may charge a maximum interest rate of 12 per cent, the BB official said, on condition of anonymity.

“Probably, shortly we will be able to introduce this new initiative,” said the BB governor at a session on long-term finance.

The BB has maintained the ceiling since April 2020. In January, it relaxed the lending rate cap for consumer loans, allowing banks to hike it up to 3 percentage points.

Citing the BB’s efforts aimed at restoring discipline in the foreign exchange market, Talukder said that the central bank was trying to keep the exchange rate stable.

Bangladesh’s foreign exchange market has been under pressure for nearly a year owing to the fast-depletion of the foreign currency reserves amid escalated import bills.

The reserves have slipped to a six-year low of $31.15 billion last week, down 30 per cent from $44.14 billion recorded in March last year. Amid the shortage of the American greenback, the taka has lost its value by about 25 per cent in the past one year.

“We will also eliminate multiple rates of the US dollar. We are close to that. You will see shortly a market-based exchange rate regime.”

Currently, the US dollar trades at different rates for exporters, importers and remitters.

The governor said that the central bank has taken several measures to contain higher inflation, which has stayed at an elevated level for the higher global commodity prices.

Consumer prices climbed to 8.78 per cent in February, breaking a five-month declining trend, official figures showed yesterday.

“Our policy is to reduce the growth of aggregate demand while making supply-side interventions. This means the central bank will finance the supply-side initiatives,” Talukder said.

Speaking at the discussion, Ali Reza Iftekhar, chairman of the Association of Bankers, Bangladesh, a platform for managing directors of banks in Bangladesh, described non-performing loans (NPLs) as cancer.

“If you can’t cure it within the shortest possible time, you will die. And there is no other conclusion. A bank should be very careful about NPLs,” said the managing director of Eastern Bank.

“If you look at the balance sheet of any bank, you will see that it earns a lot of money. But it also loses money because of the defaulted loans.”

Default loans in the banking sector jumped 17 per cent year-on-year to Tk 120,656 crore last year owing to a lack of corporate governance and the ongoing business slowdown.

“If we don’t have good governance at banks, you will face a high level of NPLs. You can’t stop it. The role of the board and the management should be clearly and distinctly divided. The roles are different but the goal should be the same,” Iftekhar said.

The noted banker suggested banks not hide NPLs. “If they hide defaulted loans under the carpet, bad loans can’t be managed.”

According to Iftekhar, good governance, reducing NPLs, and appointment of independent directors are highly important to ensure discipline in the banking sector.

Arif Khan, vice-chairman of Shanta Asset Management Ltd, presented a keynote paper styled “Developing Long-term Finance Markets to Support New Growth Opportunities” at the event.

“Bank deposits are mainly short-term. So, a severe asset-liability mismatch takes place when long-term loans are provided based on those deposits.”

He said higher NPLs have emerged as a concern for the banking sector.

Atiur Rahman, a former BB governor, moderated the session, which was chaired by Shaikh Shamsuddin Ahmed, a commissioner of the Bangladesh Securities and Exchange Commission.

Khalid Qadir, CEO of Brummer Partners, Alamgir Morshed, CEO of Infrastructure Development Company Ltd, Md Mahbub-Ur Rahman, CEO of HSBC Bangladesh, Asif Ibrahim, chairman of the Chittagong Stock Exchange, Yahya Al Harthi, director of Saudi Exim Bank, and D J Pandian, director-general of New Development Bank, also spoke.

Source: The Daily Star

Local and international fast-moving consumer goods (FMCG) companies are bullish about growth opportunities in Bangladesh’s consumer goods market on the back of a middle-class set to surge in size.

The number of people belonging to the middle and affluent class is projected to increase from 12 million, or 7 per cent of the population, now to 34 million by 2025, according to a paper of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

“Bangladesh is ready for big brands. And people of this country know luxury brands. It is one of the fastest-growing consumer markets in Asia,” said Syed Nasim Manzur, managing director of Apex Footwear Limited.

“People are ready to spend and they are making better choices in how they spend.”

He spoke at a discussion styled “Leveraging Growing Middle and Affluent Class for a Vibrant Consumer Goods Sector” at the Bangladesh Business Summit at the Bangabandhu International Conference Centre in Dhaka.

The three-day summit, organised by the FBCCI, aims at showcasing the country’s progress and potential to both global and local investors.

The market size of consumer goods in Bangladesh is $3.6 billion with an annual growth rate of 9 per cent, said the FBCCI paper.

Zaved Akhtar, managing director of Unilever Bangladesh, said Bangladesh would become a trillion-dollar economy at a modest 5 per cent GDP growth by 2040.

“We believe that we would be better than that.”

According to Akhtar, there is a lot of headroom in the FMCG sector as per capita consumption of Bangladesh remains lower than comparable markets.

Bangladeshis only spend $23 per capita on FMCG while in India it is $44 and more than $100 in China and Indonesia.

He said the sector has a massive potential to improve the country’s export basket.

“Currently, the country’s exports in this sector are limited to a few products. With the right policies and investments, the FMCG sector can diversify its product range and enter new markets. There are opportunities for foreign direct investment in the FMCG sector as well.”

During his presentation, MHM Fairoz, managing director of Singer Bangladesh, said the size of the consumer durable market for electronic products stood at $2.4 billion and is expected to go up to $10 billion by 2030.

“Air-conditioners were once a luxury product; but today, it is increasingly becoming an essential product owing to rising temperatures.”

Fairoz called for stable fiscal and monetary policies, centralised one-stop service, fiscal incentives for the backward linkage industry, and a consistent and long-term budgetary approach.

Speaking as the chief guest, Commerce Minister Tipu Munshi said the expanding middle class offers huge growth opportunities to the consumer goods sector.

The economic policy of the government has been an enabler in creating a sizeable middle and affluent class, he said.

“There is an immense potential for Bangladesh to become a manufacturing hub for consumer goods.”

Nasim Manzur shared some insights on how the consumer goods market is reshaping.

When BMW launched its cars in Bangladesh, the initial plan was to sell 60 cars in a whole year. “But BMW sold 60 cars in the first three months,” he said.

“There is a consumer society out there ready to consume. You can cater to the demand. There is a great room to grow in the premier space.”

Manzur said brands, both local and global, want predictable cost structures.

“Bangladesh is also making great strides in this area. For example, we know what the wage increase is going to be year-on-year. But in some competitor countries, the wage may go up by 30 per cent from one year to another year, making long-term investments very difficult.”

Rajat Diwaker, managing director of Marico Bangladesh, said the current size and growth of the FMCG sector itself speaks about the single largest opportunity for anyone who wants to do business in the country.

Md Saiful Islam, president of the Metropolitan Chamber of Commerce and Industry, said companies would have to put emphasis on sustainability in order to tackle the challenges stemming from climate change.

“There will have to be an increased focus on recycling.”

Naquib Khan, president of the Bangladesh Supply Chain Management Society, said every village has become a small town.

“Food habits are changing. The consumption pattern of Generation Z is different from ours.”

“We also need to think about sustainability and social responsibility. We need to help our environment.”

Hidayet Onur Özden, chairman of the Turkey-Bangladesh Business Council, said a circular economy is very important because without recycling, a country or firm can’t have a sustainable future.

Özden is involved in the recycling business. “From recycling, businesses can make money. This is not only for making the world greener or doing good for our future generations.”

Tapan Kanti Ghosh, senior secretary of the commerce ministry, said firms would have to cut costs to remain competitive as competition would intensify once Bangladesh graduates from the grouping of the least-developed countries and becomes a developed nation as duties have to be slashed significantly.

While moderating the discussion, Rupali Chowdhury, managing director of Berger Paints, said the consumer goods sector is growing at multiple times the gross domestic product.

She said per capita paint consumption in Bangladesh is one kilogramme whereas it is 25 kgs globally. “So, there is a huge room to grow.”

Source: The Daily Star

The consumer electronics sector in Bangladesh is witnessing a slide in demand as sales have declined by 40 per cent from a year ago amid belt-tightening by customers.

Retailers say consumers are reluctant to spend on luxury items amid the ongoing economic crisis and inflationary pains.

Although industry data on the sales of electronic home appliances is hard to come by, the sales records of companies, both foreign and local, pointed to the slump in demand.

Major players in the domestic consumer electronics market are Walton, Transcom Digital, Rangs Electronics, Rangs Toshiba, Best Electronics, MyOne Electronics Industries, Jamuna Electronics, Pran RFL (Vision), Esquire Electronics, Electra International, and Super Star Group.

Foreign companies such as Samsung, LG, General, Sharp, and Whirlpool are also popular among local consumers.

“The sales of electronic home appliances have declined by 30 to 40 per cent due to higher inflation and a spike in the price of electronic products,” said Ritesh Ranjan, head of business at Transcom Digital.

The electronics home appliances market faced a slump in sales at the early stage of the coronavirus pandemic. But Ranjan said the situation is different this time.

“The price of electronic items has risen by 15 to 20 per cent because of the dollar price hike. Besides, consumers are reluctant to purchase non-essential items,” he said.

The taka has lost its value by about 25 per cent against the US dollar in the past one year, led by the shortage of the American greenback.

The ongoing inflationary pressure has also impacted the consumer electronics market, Ranjan said.

Owing to escalated prices of imported commodities and raw materials, inflation has stayed at an elevated level in Bangladesh for nearly one year.

Ranjan said the sector did well in 2022 despite a number of crises. “But the ongoing economic situation is not favourable for the market.”

According to the senior executive, the demand for microwave ovens and rice cookers has not fallen that much. On the other hand, refrigerators and air conditioners are facing a decline in demand.

He hopes the sales of air conditioners will increase this month as temperatures might start to rise as summers approach.

Md Manzurul Karim, general manager of Esquire Electronics, the sole distributor of Japanese electronic brands General and Sharp, said the sales of consumer electronics items have gone down by around 50 per cent as most people can’t afford luxury items.

“Corporate clients have kept the business alive.”

Esquire Electronics has 80 outlets and more than 400 distributors across the country. “Of them, 30 to 40 per cent are operating below break-even,” said Karim.

Local manufacturers who dominate the market from urban to rural areas are facing the same situation as households don’t have much disposable income.

Sales in the weeks to Ramadan usually pick up as retailers offer discounts. But the number of customers is very low this year, according to Karim.

Walton Hi-Tech Industries PLC, the country’s largest consumer electronics manufacturer, recorded a massive slump in profit in 2022 although sales volume remained almost unchanged.

The company blamed the Russia-Ukraine war, higher inflation, and the price hike of the US for the drop in earnings.

“Our sales volume has remained the same despite the price spike of products thanks to the rise in raw material costs, shipping charges, and the depreciation of the taka,” said Humayun Kabir, deputy managing director for marketing of Walton.

Singer Bangladesh registered its lowest profit in 14 years in 2022, owing to the increased cost of raw materials, higher freight rates, and the fall of the value of the taka.

The sales have remained the same as it was in the second half of 2022, said Kazi Ashiqur Rahman, company secretary of Singer Bangladesh.

“The market situation is not favourable for the electronic industry as electronic home appliances are not essential items like medicines and foods.”

Electronic items retailers are facing a sales slump globally.

For example, US electronics retailer Best Buy has forecast a 13 per cent slump in current-quarter comparable sales, while retailer Walmart has slashed its profit forecast, saying soaring gas and food prices dented demand for discretionary items.

Both Singer’s Rahman and Transcom Digital’s Ranjan don’t see any significant improvement to the market scenario until the war comes to an end and the economic uncertainty disappears.

Manzurul Karim said: “Our assessment showed that the market will remain dull in 2023. For this reason, we have taken steps and reduced the import of products to survive during the crisis period.”

Source: The Daily Star