Small loans surge

Term loans to large companies dropped in the first quarter of the fiscal year, while disbursement of credit among small and medium enterprises soared.

“It is a good sign. If this trend continues employment will increase, financial inclusion will deepen,” said a high official of Bangladesh Bank.

Term loan is a loan from a bank for a specific amount that has a specified repayment schedule and a variable interest rate. They almost always mature between one and ten years.

A total of Tk 12,699.98 crore was disbursed in term loans between July and September last year, up 0.86 percent from a year earlier, according to central bank statistics.

During the period, lending to big companies dropped 8 percent year-on-year. By contrast, it shot up 70 percent for the small and cottage industries and 14.59 percent for medium enterprises.

The BB official said the banks are now becoming more conscious, due to which they are lending more to small-scale entrepreneurs, who are said to contribute more to the economy and are of low-risk.

Another BB official said many large loans had to be restructured in recent times, which discouraged banks to give out fresh credit to large companies.

The banks had to keep provision against the restructured loans, which is a punishment for them.  So, they are giving out small loans more instead of large ones, he added.

Agrani Bank Chairman Zaid Bakht said when a large loan becomes default much pressure is created on the banks. As a result, banks are now more interested in distributing small loans.

Besides, the small and medium loans have more contribution to economic growth. “So, the banks have shifted their focus more towards them,” he added.

Zahid Hussain, lead economist of the World Bank's Dhaka office, said there is uncertainty in the global economy, due to which large companies are shirking from taking term loans.

Last week, the International Monetary Fund said the global economic recovery was gaining traction but warned that it was “still at risk” because of Eurozone debt and a lack of financial reforms.  Plus, uncertainty prevails on the domestic front for large companies given the gas and power scarcity, Hussain said.

The small and medium enterprises do not rely much on gas connection; getting power links is enough for running their factories, he said.

If political stability prevails, they will not face any problem in selling their products, according to Hussain. “So, term loan disbursement among these enterprises has been increasing.”