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Bangladeshi textile mill owners have requested policy help from the central bank in the form of increased Letter of Credit (LC) limits, longer loan payback terms, and reductions on loan installments.
The Bangladesh Textile Mills Association (BTMA) wrote a letter to the Bangladesh Bank on December 6. The letter asked for the two-year loan payback time extension that the BTMA had granted earlier in the outbreak.
The textile millers asked for an increase in their Letter of Credit (LC) limit as well as permission to exceed their single Borrower Exposure limit if it happened after the requested extension because they are juggling the combined challenges of the current economic downturn and the taka devaluation.
Entrepreneurs in the textile sector proposed in the letter to pay only 20% of the term loan installments, requesting a temporary reduction in installment payments. Due to the current economic slump, they are witnessing major contractions in both output and overall company, thus the remaining payments should be postponed for four years.
Additionally, the textile industry requested that the central bank take one of two actions: either set a fixed exchange rate for US dollars that applies to remittance and export transactions, or completely deregulate the currency rate and let it vary freely on the market.
"It would not be possible for the local textile mills to sustain in such a situation if the mills do not get proper incentives and policy supports," Mohammad Ali, president of the BTMA, said.
"While the government's stimulus package helped us initially overcome the pandemic's effects, the challenges of the Russia-Ukraine war, the global economic crisis, the dollar crisis, and local political instability have plagued our operations for the past several months," the statement reads.
Our competitiveness and export potential have been severely impeded by the recent spikes in the cost of gas, power, transportation, and other raw materials, making it harder for us to compete on the world market, according to Khokon.
The overhead costs of textile mills have increased dramatically as a result of the 150% increase in gas prices and the 50% increase in worker wages, making it challenging for these businesses to remain profitable. Mills are frequently running at break-even, and some are even losing money.
The Bangladesh Bank lowered the maximum amount of loans that any bank could make to one individual or group from 35% to 25% of its entire regulatory capital in January of last year.
As per the regulations, no bank shall grant a person or an organization more than 15% financed and more than 10% non-funded loans.
Large loans up to a maximum of 50% of total capital may be provided by banks with default rates on loans less than 3%. According to the central bank circular, institutions with less than 5% of defaulted loans will be eligible to lend up to 46% of large loans; those with less than 10% would be eligible to supply 42%; and those with less than 15% of defaulted loans will be eligible to provide 38% of large loans.
Furthermore, banks with fewer than 20% in defaulted loans will be eligible to contribute significant loans totaling 34% of capital, while those with more than 20% of defaulted loans will contribute 30%.
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