Bangladesh’s apparel businessmen are the top loan defaulters in the country – contributing to the recent phase of cash shortage at banks that has, in turn, affected adversely to the honest businessmen in the country, a recent report released by the Bangladesh Bank says.
According to data from Bangladesh Bank’s Financial Stability Assessment Report, during 2017, credit from the banking sector increased by BDT 1,24,470 crore. Also, during this time, the total amount of bad loans increased by BDT 12,132 crore, compared to 2016.
Specifically, for the readymade garment sector, the total amount of credit given out to the industry stood at BDT 93,000 crore. Back in 2016, the credit amounted to BDT 75,800 crore. Over this period of one year, the amount of bad loans increased by BDT 2,980 crore. Compared to 2016, the amount of bad loans in this sector amounted to BDT 7,850 crore, which increased and stood at BDT 10,790 crore by the end of 2017.
A similar situation prevailed in the textile sector. By the end of 2017, the total amount of credit amounted to BDT 61,990 crore, which was BDT 54,370 crore back in 2016. The amount of bad loan stood at BDT 7,490 crore, up by BDT 2,240 crore from 2016.
Association of Bankers’ Bangladesh (ABB), Chairman and Managing Director of Dhaka Bank, Syed Mahbubur Rahman reportedly said that many new entrepreneurs invested in the readymade garment sector last year – which showed up as the increased credit given out by the banks. Also, many of the businessmen could not sustain business due to several reasons and shut down manufacturing. This is why the bad loans have risen in the sector.
Is it capital flight?
Bangladesh’s apparel industry, especially the fast fashion at the supply side, was at the verge of hitting a bump, for the retailers and brands sourcing apparel items from Bangladesh with the country experiencing a liquidity crisis owing to bad and nonperforming loans.
Apparel makers, investors and stakeholders were genuinely concerned that it might have turned into a full-blown crisis for the nearly US $ 30 billion apparel sector which consistently holds up over 82 per cent of the country’s total export basket.
According to reports, at the end of December 2017, the overall non-performing loan ratio in the banking sector stood at 10.70 per cent, up from 10.10 per cent six months earlier. Private sector credit grew by 18 per cent in February; yet, private investment did not pick up.
Independent local think tank Centre for Policy Dialogue (CPD) has termed the gap as capital flight – common ahead of Bangladesh’s general election which is due by the end of 2018.
While talking to Apparel Resources, Mohammad Hatem, Vice President for Exporters Association of Bangladesh and proprietor of MB Knit Fashions, says the nonperforming and bad loans have contributed to a cash crunch at the banks which is adversely affecting the apparel industry of Bangladesh. Also, he said, there is a possibility that capital flight has taken place from this sector during 2017.
It is to be noted that most of Bangladesh’s garment factories still operate on bank loans. Though concrete statistics in this regard are unavailable, owners and stakeholders say that bank loans make for main source of cash for production of garments at most of the factories, including the big ones.