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Research Workshop on Short Term Foreign Currency Financing of Banks held in BIBM


A day long research workshop was held at the Bangladesh Institute of Bank Management (BIBM) on July 27, 2017 in its auditorium. The research workshop paper was presented on 'Prospects and challenges of short-term foreign currency financing of banks'.The research was conducted by BIBM professor and director Dr Shah Md Ahsan Habib, assistant professor Antara Zareen, lecturer Tofayel Ahmed, Bangladesh Bank joint director Pradip Paul, vice president of Mutual Trust Bank ATM Nesarul Hoque and first assistant vice president of Bank Asia Limited Mohammad Rafiqul Islam.

The research was conducted on 20 banks. A good number of central bankers and commercial bank executives also contributed input into the study. The paper was presented in the workshop by Dr.Shah Md. Ahsan Habib, Professor and Director (Training) of BIBM. BIBM Director General Dr Toufic Ahmad Choudhury chaired the programme.

The objectives are to find out the similarities and dissimilarities of short term foreign loan across the banks, to find out the strengths and weaknesses of trade services operations and to identify the changes in recent times.The study also identifies the problem areas as well as success factors in trade services operations and suggests some possible measures for better functioning of trade services operations of banks. A good number of participant’s senior bank executives, academicians, media representatives, faculty members, officers of BIBM participated in the research workshop.  

While speaking at the workshop, Bangladesh Bank deputy governor Abu Hena Mohd Razee Hassan said the central bank will not allow unlimited private sector foreign credit as some of East Asian countries' international trade collapsed due to high volume of private sector foreign lending. 

He said there is a huge demand for foreign currency financing due to low interest rate. Though financing in foreign currency creates loan burden on other countries, yet if foreign currency is not paid regularly, it creates reputational problem not only to borrowers but also to Bangladesh.

The study recommended collection of detailed data on the short-term foreign currency financing as there was no segregated data on private sector credit and banking sector credit in any public source. The available data showed that short-term credit grew around 700 per cent at the end of 2013 following the permission of buyers' credit activities or Usance Pay at Sight (UPAS) letters of credit (LCs) by the central bank.The growth of short-term credit in foreign currency was 31 per cent at the end of 2016, it said. The short-term foreign currency financing was US$ 230 million in 2012 whereas it stood $ 6,157 million in 2016.

According to study, the country's private sector debts as percentage of total debts was 6.56 per cent in 2012, it became 12.64 per cent in 2013, 18.61 per cent in 2014, 21.03 per cent in 2015 and 22.51 per cent in 2016. And the percentage of short-term private sector debt to total debt was 0.85 per cent in 2012 whereas it became 5.9 per cent in 2013, 10.08 per cent in 2014, 12.27 per cent in 2015, and 14.9 per cent in 2016.

Chairing the programme, BIBM Director General Toufic Ahmad Choudhury said there were good and bad sides of foreign currency loans.The loan portfolio increases because it costs lower than local loans. If the local currency gets depreciated during the time of repayment, the country's balance of payments will be in trouble, he said.

Other speakers said many East Asian countries had faced the problem in 1990s. Later, many of these countries discouraged foreign short-term foreign currency borrowing, they said.

Supernumerary professor of BIBM Md Yasin Ali, additional managing director of Islami Bank Md Mahbub-ul-Alam, BIBM faculty member Syed M Bariqullah and Eastern Bank deputy managing director Ahmed Shaheen also spoke at the programme.

Written by Manager

Tuesday 22nd August 2017