Bankers fear slow loan payback from spinners

Bankers fear random import of low-cost yarn from neighbouring India will cost them heavily by making their clients defaulted.

Banks have also tightened their grip on new lending to this sector to see the bad time of the industry, which had a consistent growth for the past one decade, bankers said.

“Payment from the spinning millers is getting slowed,” said Ali Reza Iftekhar, managing director and chief executive officer of Eastern Bank.

He said banks are in a threat because they have huge exposure in spinning mills, which are capital-intensive industries.

“We are in great uncertainty. Immediate steps are needed to address the issue,” said Shahjahan Bhuiyan, managing director of United Commercial Bank.

Bhuiyan said about Tk 60,000 crore are involved in the textile sector spinning, knitting, dyeing and import of raw materials required for the industries.

The ongoing global recession has already caught up with the country's yarn industry with substantial fall in its local and export demands and a pile up of a huge amount of unsold yarn.

Easy access to import the item from India at a cheaper rate has made the local millers more worried.

According to industry people presently the Tk 27,000 crore spinning mills of the country are struggling with an inventory of 2.5 lakh tonnes of yarn worth Tk 2,500 crore that millers failed to sell for a demand decline and a flood of comparatively low cost yarn from India.

Earlier yarn import from India was restricted, but the caretaker government at its last time decision withdrew those restrictions and allowed importers to go freely.
Manufacturers are now importing Indian yarn at 15 to 20 cents per pound lower rate than that of locally produced yarn.

Bangladesh's commercial banking sector comprising 30 private banks, nine foreign banks and four state-owned banks has financed a lot to develop the country's textile industry. They have financed set up about 350 spinning mills in the country to supply yarn for manufacturing woven and knit garments. Banks also fund to import raw materials for the spinners.

“About Tk 60,000 crore bank finance are involved with the whole industry spinning, dyeing, knitting and import of raw materials,” Shahjahan Bhuiyan said.
Bhuiyan said many of their clients couldn't finance bank payment due to poor sale of the yarn produced locally.

“Now local yarn producers are forced to sell their product at a lower rate for their survival,” Ali Reza Iftekhar said.

He said Bangladesh's yarn is better in quality than the Indian product.
“Immediate corrective measures are needed, otherwise the industry will be in great difficulty,” the EBL chief executive remarked.

A senior official in Janata Bank, which has huge exposure in the sector, also admitted the fear.

“Local industry will have benefited if the government did not allow low-cost Indian yarn,” the official who requested not to be named said.

Source: The Daily Star, February 5, 2009