Professional Documents
Culture Documents
Sayera Younus,1
Shohel Ahammed,
Syeda Ishrat Jahan,
Ayasha Akter,
Farhana Sharmin,
Samir Ashraf
May, 2014
Chief Economists Unit
Bangladesh Bank
1 The authors of this note are a Deputy General Manager, Deputy Directors, and Assistant Directors of Chief
Economist Unit respectively. The authors would like to thank Dr. Hassan Zaman, Chief Economist, Bangladesh Bank
for his helpful comments and suggestions in the earlier versions of this policy note. However, any remaining errors are
the authors own.
Recognized Lenders are defined as follows: International banks, international capital markets, multilateral financial
institutions (IFC, WB, ADB, OPEC Fund etc.); export credit agencies and; suppliers of equipment; borrowing from
foreign equity holders for short-term bridge financing.
3
Here investment refers to import of capital goods for new projects, modernization/expansion of existing production
units. The scope and restrictions on the end use of foreign borrowings can be found in paragraph (v) under the
Category and eligibility section of Existing Procedure and Guidelines for approval of Foreign Private Loan form by
BOI.
In order to obtain loans from foreign sources a private company in Bangladesh needs approval
from the Scrutiny Committee of the Board of Investment (Chaired by the Governor, Bangladesh
Bank). After getting approval, the company has to submit a loan agreement through the External
Debt-1 (ED-1) form. They also have to report transaction data through 'ED-2' form on quarterly
basis. As per the directive of the central bank issued in November 09 (FEPD Circular No. 21,
November 03, 2009), the borrowing companies have to duly submit the aforementioned forms to
the statistics department of Bangladesh Bank through their respective authorized dealer (AD)
banks. According to FDI Survey, January-June 2013, the total stock of private sector external debt
(PSED) by foreign and joint stock companies has nearly doubled from USD 971.1 million at the
end of June 2000 to USD 2731.10 million at the end of June 2013.
Table-1: Sector-wise distribution of approved loan (2009-2014)
Number of
Companies
Total Sector-wise
Approval
(in Million USD*)
RMG/Related Products
98
693.7
Power
22
1028.8
Telecommunication/ISP
11
2356
Agricultural Products/Dairy
Products/Food & Allied
11
127.2
Pharmaceuticals/Healthcare
140.5
Cement
Shipping , Water Transport,
Cargo Handling
Packaging
85.5
111
6.2
Footwear
Electronic Goods
Manufacturing
Air Transport
20
34
98.9
Steel
232.5
365
24
236.8
203
5536.25
Sector
Conglomerate
Other
Total**
Statistics Department, Bangladesh Bank.*Up to 27th March, 2014.**The number of companies is less than
numbers of approvals, as some of the companies sought and were permitted to take foreign loans on
multiple instances.
BEXIMCO
3. Methodology
Both primary and secondary data have been used to assess the effectiveness of external
commercial borrowing in Bangladesh. We collected secondary data of approved commercial
borrowing and disbursement by BoI from the statistics department of BB. Two hundred and three
private companies received approval for foreign loan during 2010-2013 (Table 1). The approval
list contained companies from different sectors of the economy, ranging from food product,
aviation, RMG to banking, telecommunication etc. From 203 companies, thirteen were selected
from the list for field visit. The study team visited the selected companies and held personal
interviews with company officials to acquire primary data and understand their view on external
commercial borrowing. After collecting data, the team consolidated its findings.
4. An Overview of Private Sector External Borrowing
About 20 private enterprises got approval of USD 936.30 million loans in 2011 which increased to
USD 1579.57 million (among 81 enterprises) in 2012 and further to USD 1555.33 million (among
116 enterprises) in 2013. The average approved loan size over these three years is USD 1357.06
million per year among roughly 55 companies on average.
Table-2 shows the trends of quarterly disbursements of external debt. In 2012, an amount of USD
528.98 million has been disbursed by external lenders to Bangladesh private corporate sectors as
against USD 1520.59 million approved loan by the BoI (Appendix-1). This amount is about 35.0
percent of the total approved loan for 2012 and 25.30 percent for 2013. The low proportion of
disbursement against BoI approval requires further investigation.
Table-2: Key Statistics of Private Non-Guaranteed External Debt (PNED) of Bangladesh
Sl.
Item
2012 Q1
1,228.55
2012 Q2
1,318.49
2012 Q3
1,502.93
2012 Q4
1,522.72
2013 Q1
1,742.12
38.19
79.75
31.40
19.00
12.27
Private Nonguaranteed External Debt stocks (PNED) of Bangladesh at the end of 2012 was less
than 1 percent of that of India. The ratio is low even when comparing the relative PNED stocks of
these two countries. India's PNED stocks were 42.26 percent of its total external debt and 8.62
4
percent of its GDP at the end of the 2012. For Bangladesh, it was 5.05 percent and 1.13 percent
respectively (Table- 3).
Table-3: Private External Debt Stock at the end of 2012
Indicator Name
India
Private Nonguaranteed External Debt stocks, PNED (DOD, current
160.20
US$ in billions)
External debt stocks, total (DOD, current US$)
379.09
GDP (current US$ in billions)
1858.74
PNED as % of Total External Debt
42.26
PNED as % of GDP
8.62
Bangladesh
1.32
26.13
116.35
5.05
1.13
Source: Statistics Department, Bangladesh Bank and World Development Indicators, 2013
Chart -1: Long term PSED and GDP ratio of Selected South Asian Countries
10%
5%
0%
2000
2001
2002
Bangladesh
2003
2004
India
2005
2006
2007
Pakistan
2008
2009
2010
Sri Lanka
2011
(percentage)
30.00
25.00
20.00
15.00
10.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(percentage)
140.00
120.00
100.00
80.00
60.00
40.00
2005
2006
2007
2008
2009
2010
2011
(percentage)
350.00
300.00
250.00
200.00
150.00
100.00
2005
2006
2007
2008
2009
2010
2011
Analyses of the survey results show that these loans have been used mostly to import foreign
capital machineries to expand existing projects and to establish new ones as well. The summary
results are interpreted in the following paragraphs. Further elaboration on the topic is given in
Appendix-4.
It is revealed from the survey that the main rationale for borrowing from foreign sources are
because of lower interest rate compared to domestic sources; (external: libor+34.5%.Domestic:14%-18%) and also because most local banks could not finance large projects, due
to their limited capital base. In terms of the loan use most of the companies uses borrowed fund
mainly to import capital machineries either to start new projects or to expand the existing one.
Some of the external loan has been used to pay off local loans, and one company used the loan to
pay LC payments (Deferred LC).
The survey results suggest that the loans were used productively, except for one company who
faced difficulty in purchasing land for the new project and had to reimburse majority of the
disbursed loan.
The survey result also pointed to some difficulties in external borrowing such as:
i)
ii)
iii)
Due to exchange rate fluctuation some companies-which do not export, face losses in
local currency since they need to pay in dollars.
One company which borrowed from the offshore banking unit of a local bank, faced
significant losses as the bank was unable to continue foreign exchange financing-and
switched to higher cost local financing.
One company sighted the lengthy procedure of loan approval as a major hurdle to
acquire loans.
6. Recommendations
We would like to make the following recommendations.
First, further work need to be done to find out whether indeed companies are facing any difficulty
in availing loans after getting the approval, or whether the disbursement data recorded in the
statistics department of BB is incomplete.
Second, since Bangladeshs debt repayment capacity has steadily improved and these funds appear
to contribute to growth, one can consider further encouraging these types of loans. One way would
be to significantly simplify the approval process by for instance introducing on-line submission of
applications and through clear communication over procedures.
Third, in terms of loans utilization, the borrowing companies could be asked to report on a sixmonth basis on use of the foreign commercial borrowing.
Name of
Company
Year of
Loan
Approval
Sector
Interest
Rate
Vintage Denim
Studio Ltd
(VDSL)
2012
RMG
Blue Ocean
Footwear
Limited
2011
Footwear
3-months
LIBOR+
4.5% margin
per annum
5.00% p.a.
Ever Smart
Bangladesh Ltd.
2010
Knit
Garments
Natore Agro
Ltd.
2012
United Airways
(BD) Ltd.
Orascom
Telecom
Bangladesh Ltd
Total
Approved
(BOI)
loans
USD
Million
6.00
Actual
Disbursem
ent USD
Million
Use of loan
6.00
Import of capital
machineries for
expansion
2.28
2.28
0%(parent
company
loan)
13.37
10.87
Agricultural
Products
5.09%
15.00
10.00
20082011
Air
Transport
Zero
interest
rate
(suppliers
credit)
61.30
21.80
20072012
Telecommu
nication
3M US$
LIBOR +
0.55%
TO 3M US$
LIBOR +
3.70%.
830.51
266.73
Fixed assets
Name of
Company
Year
of
Loan
Appr
oval
Sector
Interest
Rate
Nestle
Bangladesh
Ltd.
2012
Chocolate
Confectionery
&Food
BRAC Bank
Limited (
BRAC OBU)
2011
Bank , OBU
3M US$
LIBOR +
Margin of
350 bps
3M US$
LIBOR +
3.25%.
Akij Ocean
Line Ltd.
2011
Shipping Lines
10
RZ Power
Ltd.
2010
Power
Generation
11
Incepta
Pharmaceutic
als Ltd.
Summit
Power Ltd.
20112013
Pharmaceuticals
2011
Electric
Generation
Shun Shing
Cement Mills
Ltd.
20122013
Cement
12
13
Total
Approve
d (BOI)
loans
USD
Million
17.00
Actual
Disbursement
USD Million
Use of loan
17.00
Fixed assets;
purchase of
capital machinery
40.00
40.00
6.00%
15.00
14.98
3M US$
LIBOR +
3.5 %
3M US$
LIBOR +
4%
3M US$
LIBOR +
4%
3M US$
LIBOR +
3.5%
15.45
15.45
Trade finance
program & to
support OBU,
loan & bill
discounting.
Fixed Assets; to
pay the LC
payment (
deferred LC) of
buying a ship
Fixed Assets;
procuring capital
45.00
10.00
Investment in
fixed assets
45.00
45.00
Fixed assets
20.00
5.36
To import capital
machinery
10
A.1
Appendix
Approved (BOI) Loan Amount of Foreign Commercial borrowing of Private
Enterprises in Bangladesh in 2009
Sl. No.
Name of the Debtor
1
BM Container Depot Limited.
2
Imperial Hospital Ltd
3
Imperial Hospital Ltd
4
WWR Bio Fertilizer Limited
5
Orascom Telecom Bangladesh Ltd
6
Regent Spinning Mills Ltd
7
Echotex Limited
8
Square Pharmaceuticals Limited
9
Well Spin Composit Ltd
10
Cosmopolitan Fashions Limited
11
Apex Textile Printing Mills Limited
12
RFL Plastic Limited
13
Augere Wireless Broadband Bangladesh Limited
14
United Airways Limited
15
Orascom Telecom Bangladesh Ltd.
16
Lyric Apparels Limited
17
Color City Limited
18
United Airways Ltd
19
United Airways Ltd
20
Pacific Bangladesh Telecom Ltd.
` Total in Year 2009
6.59
115.00
16.50
1.70
15.00
96.00
1.00
5.00
15.00
10.00
6.50
50.00
0.20
20.00
14.42
1-Jul-09
1-Jul-09
1-Jul-09
1-Jul-09
1-Jul-09
1-Jul-09
6-Mar-09
8-Feb-09
8-Feb-09
8-Feb-09
9-Jun-09
17-Nov-09
17-Nov-09
17-Nov-09
17-Nov-09
17-Nov-09
17-Nov-09
10.80
412.61
11
A.1
Sl. No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
Total in Year 2010
12
A.1
Sl. No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Total in Year 2011
13
A.1
Sl. No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
Total in Year 2012
14
A.1
15
A.1
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
Total in Year 2013
21.10
6.00
40.00
1.20
1.73
10.00
32.00
8.00
1.16
4.07
1.40
3.00
11.90
5.00
200.00
9.50
1.89
7.00
1.21
2.10
2.08
10.00
3.50
4.63
3.50
1.20
5.43
1.80
11.08
5.00
5.00
6.21
7.50
2.08
12.00
12.50
2.75
2.00
4.77
5.00
1.56
3.50
6.93
0.69
7.07
9.48
15.00
14.75
10.00
5.10
0.30
14.00
6.95
4.50
3.29
4.00
1.26
21.00
0.36
0.30
1555.33
16
18-Jun-2013
18-Jun-2013
18-Jun-2013
18-Jun-2013
18-Jun-2013
29-Jul-2013
29-Jul-2013
29-Jul-2013
29-Jul-2013
29-Jul-2013
29-Jul-2013
29-Jul-2013
5-Sep-2013
5-Sep-2013
5-Sep-2013
5-Sep-2013
5-Sep-2013
5-Sep-2013
5-Sep-2013
5-Sep-2013
5-Sep-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
3-Oct-2013
25-Nov-2013
25-Nov-2013
25-Nov-2013
25-Nov-2013
25-Nov-2013
25-Nov-2013
25-Nov-2013
25-Nov-2013
25-Nov-2013
25-Nov-2013
25-Nov-2013
25-Nov-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013
24-Dec-2013