Banks fail to step up in lending out to small businesses

Banks and financial institutions have failed to speed up the loan disbursement from the second round’s stimulus package meant for the cottage, micro, small and medium enterprises (CMSMEs).

Most of the CMSME borrowers who are yet to recover from the pandemic shock failed to repay the previous loans and higher operational costs are behind the reasons for slow disbursement, bankers say.

After the expiry of the first round of stimulus loans in June this year, the Bangladesh Bank announced another Tk 20,000 crore for the current fiscal year. The latest stimulus programme is expected to continue for three years.

From July to December 21, fifty-two banks and non-bank financial institutions lent Tk4,136 crore out to 2,8303 CMSME customers, according to the latest Bangladesh Bank data.

The figure is 21 per cent of the total stimulus package.

Frustrated by the slow loan distribution from the stimulus package, the BB already directed the banks and NBFIs to speed up the loan disbursement.

“It can be seen that the banks and other financial institutions have failed to produce the expected pace of credit disbursement in the CMSME sector. Therefore, constant supervision is needed to effectively distribute loans in this sector,” the central bank said in a statement earlier.

Against this backdrop, the BB will discuss the issue and push up banks to speed up the loan disbursement to the CMSMEs in the upcoming bankers’ meeting on December 28.

“We may penalize the banks with poor performance in loan disbursement,” said a BB official.

During the period, Bank of Ceylon was the lowest performer in loan distribution as it disbursed only 3 per cent of its target, followed by IFIC Bank 3.92 per cent, Basic Bank 4 per cent, Standard Chartered Bank 5. 4 per cent and Rupali Bank 6 per cent, according to the BB data.

Apart from them, Mercantile Bank disbursed 8.02 per cent, NRB Commercial Bank 9.2 per cent, Pubali Bank 8.7 per cent; Southeast Bank 3.86 per cent, Standard Bank 5.2 per cent, Trust Bank 7.9 per cent, UCB 8.3 per cent, First Security Islami Bank 4.4 per cent, EXIM 6.10 per cent, Islami Bank Bangladesh 4.6 per cent and SIBL 9.33 per cent of their targets, BB data said.

“Most of the CMSMEs are yet to repay the previous loans and this is one of the reasons behind the slow disbursement,” said a banker.

The management cost of SME loans is much higher than that of industrial loans, which is another reason behind it, he said.

PRI Executive Director Ahsan H Mansur said the 9 per cent ceiling for lending is the major reason behind the slow disbursement of the sector.

He said that where the interest rate for lending is up to 25 per cent in microfinance, it is only 9 per cent in the case of banks, which is not profitable for banks.

In the first round, around Tk 15,000 crore was disbursed, which was 75 per cent of the of total stimulus loan. The banks and financial institutions were also slow to lend out the loans to the CMSMEs.

In line with the government’s instruction, the BB published a policy in April 13 last year laying out guidelines for banks and financial institutions on providing working capital to CMSMEs affected by the coronavirus pandemic, capping the interest rate ceiling at 9 per cent.

Of the interest, the government bears 5 per cent as subsidy and the remaining 4 per cent will be borne by borrowers.