The government's borrowing from the banking sector in four months till October of the current fiscal year decreased by 42 percent compared to the same period last year.

The amount fell as the government refrained from taking abnormally huge loans from banks seen in the period last year.

However, such borrowing has started to go up again after mid-September.

In the first four months and six days (till November 6) of the current fiscal year, the government's total borrowing from the banking system was Tk 7,591 crore, down from Tk 13,042 crore in the same period last year.

Of the total amount, the government borrowed Tk 1,807 crore from the central bank.

But in mid-October the scenario was different when no amount was borrowed from the central bank rather the government repaid Tk 141 crore to Bangladesh Bank.

But the government borrowed Tk 4,640 crore from commercial banks on October 18.

The recent borrowing pattern also shows that though non-food inflation rose, the government continues to borrow from the central bank, creating more inflationary pressure.

When money from the central bank gets circulated in the market, it increases non-food inflation by increasing the money supply.

According to Bangladesh Bureau of Statistics, non-food inflation again crossed the double-digit mark and reached 10.46 percent in October.

An official of the central bank said the overall inflation came down to single digit and is slightly above 7 percent now.

The official also said they have been maintaining the borrowing pattern in such a way that it does not create any problem for the private sector to get credit.

The trend of borrowing from the central bank changes every month, he said, adding that they will closely monitor the increase in government's borrowing from the BB in line with their monetary policy.

The data of development expenditure till October 30 is not available yet.

However, in the first quarter of the current fiscal year the government's development expenditure was Tk 6,381 crore or 12 percent of the total annual development programme (ADP).

Of the total development expenditure, Tk 4,307 crore was spent from own resources.

However, a finance ministry official said the government had to borrow from the banking system as non-development expenditure marked a rise.

He said statistics of the non-development budget is available now for the first two months of the current fiscal year.

In the first two months of the current fiscal year, the expenditure in non-development budget increased by 11.4 percent over the same period last year.

During the July-August period of the current fiscal year, the total non-development expenditure was Tk 12,852 crore.

Of the total expenditure in the first two months, the expenditure on interest payment went up by 17.7 percent.

As the government's borrowing increases every year, its expenditure is also going up due to higher interest payment.

In the budget this year, the highest allocation was made for interest payment, which is 26.38 percent of the total non-development budget.

News: The Daily Star/Bangladesh/18-Nov-12

A man works at a garment factory. Apparel is the largest part of Bangladesh's exports, which are set to grow substantially along with Asia-led trade growth.

Bangladesh's trade is expected to grow 19 percent a year between 2013 and 2015, driven by a rise in trade with the neighbouring India, HSBC said in a report, Global Connections.

The bank also forecasted the country's annual trade growth to be in the region of 14 percent from 2016 to 2020.

Although the Asian export growth is expected to be lower in 2016-20 than in the near-term, some countries, namely Bangladesh, Malaysia and Singapore, are exempt from it, according to the report released recently.

HSBC's Global Connections report combines HSBC's bi-annual Trade Confidence Index with a 5-, 10- and 15-year trade forecast.

�Although trade growth in Asia has slowed over the past 12 months, the HSBC Trade Forecast says trade will pick up in 2013 and Asia will continue to power the world economy, with China and India leading the way,� said Noel Quinn, head of HSBC's commercial banking in the Asia-Pacific region.

Trade prospects for all Asian countries, however, will depend crucially on what happens in China, and to a lesser extent, in India, according to Quinn.

�Our forecasts for these two countries show strong growth continuing after the current slow patch, leading to a recovery of the world economy,� he added.

He said both China and India will continue to expand strongly in terms of world GDP, leading to emerging Asian countries becoming an increasingly important influence on world growth and trade.

This, in turn, would have a pivotal impact on flows of foreign investment between the developed and developing economies.

The HSBC report said merchandising exports from all countries in the region would remain robust, led by China, India, and Vietnam, all of whom are expected to post double-digit annual increases until 2020.

Indonesia and Hong Kong are also expected to record double-digit growth in 2013-2015 before slowing down to 7-8 percent in 2016-2020.

Bilateral trade between China and India is set to increase significantly, with India becoming the fastest expanding market for Chinese products.

Meanwhile, India's exports to China are set to grow 23 percent during 2013-15 and 19 percent in 2016-20.

The HSBC report also projects a growth in South-South trade, with Brazil and Mexico becoming important trading partners for India, Malaysia, Vietnam and China.

News: The Daily Star/Bangladesh/18-Nov-12

The average banking spread, difference between lending and deposit rates, remained as high as more than 5.50 per cent, pushing the money market in to bad competition, official sources said. The high spread shows that banks are realising high interest rate from creditors and paying low interest to depositors, meaning higher profits for the banks.
The banks have long been asked by the central bank to bring the spread below 5 per cent but none complied.
The Bangladesh Bank (BB) data showed the weighted average lending rate for all banks in September was 13.93 per cent while average deposit rate was 8.40 per cent.

Twenty-nine banks failed to maintain the interest rate spread for lending and deposits set by the central bank, according to BB.

Interest rate spread is the interest charged by banks on loans to customers, minus the interest that banks pay against savings, deposits.

Spread of foreign banks is much higher than the local banks. Among the nine foreign commercial banks, spread of four banks--Standard Chartered Bank, Citibank NA, Woori Bank and HSBC -- crossed eight per cent in September, according to the BB data during the month of September.

The other five foreign banks having spread over between 5 and 8 per cent are State Bank of India, Habib Bank, Commercial Bank of Ceylon, Al-Falah Bank and National Bank of Pakistan.

Twenty local commercial banks, including two state-owned commercial banks and a specialised banks having spread between 5-8 per cent are Agrani Bank, Sonali Bank, BASIC Bank, AB Bank, National Bank, The City Bank, IFIC Bank, Pubali Bank, Uttara Bank, Eastern Bank, Prime Bank, Dhaka Bank, Social Islami Bank, Standard Bank, ONE Bank, EXIM Bank, Premier Bank, Jamuna Bank, BRAC Bank and Dutch-Bangla Bank.

As per the recommendation of the International Monetary Fund, the central bank in January this year lifted the cap on interests on all types of loans, except agriculture and pre-shipment exports.

“This was suicidal decision on the part of the central bank,” said Mohammad Farashuddin, an ex-BB governor.
In early 2011, average banking spread came down in the range of 4.93-4.96 per cent from its peak of 7.78 per cent three years ago.

Most depositors are of the view that the banks make profits at their cost as the banks gain from the high spread.
A BB report prepared in July said the upper cap on the rate of interest on credit was withdrawn earlier and it resulted in an upward movement of interest rate on both credits and deposits.

The borrowers complain that high lending rates are hurting business and hampering economic growth.
In some cases, cost of lending range between 18 to 27 per cent, alleged some borrowers. Some corporate loans also pay as high as more than 18 per cent interest.

The highest interest is paid by consumer loan receivers as they remain vulnerable and meet their demands for fund with harsher conditions.

“Higher interest rate will definitely stifle the growth,” said AK Azad, president of apex trade body FBCCI.

A central bank official said an unhealthy competition was going on among the banks in mobilising deposits. “So they were offering higher interest rates on deposits, and as a result the rate of interest on credit was also going up,” he said.

He also said it is worrisome problem especially for small depositors who have the major share in bank deposits but get very little in return.

The central bank earlier took action against some banks for charging higher interest rates on deposit and credit but without any effect.

“The banks imposed more interest rates on credit disbursement for earning more profit from the clients,” said a banker requesting not to be named.

He said if the rate of interest on deposit could be kept low, the rate of interest on credit would have also remained low and, resulting in the decline in spread.

News: The Daily Independent/Bangladesh/16-Nov-12

The World Bank Vice President Isabel Guerrero's scheduled visit to Dhaka has been postponed due to her preoccupations in the global lender's headquarters in Washington.

Guerrero will visit Bangladesh in coming months, but the timing is not yet confirmed, WB Dhaka office's Communication Officer Mehrin A Mahbub told The Daily Star.

Mehrin said the WB vice president routinely visits countries of South Asia as part of her duties. Guerrero's initial plans for a South Asia tour in November have been postponed due to senior management meetings in Washington this month, she said.

News: The Daily Star/Bangladesh/16-Nov-12

Reforms in the state-owned banks will dominate the discussion between the government and an upcoming mission of the International Monetary Fund.

The IMF team led by David Cowen, the lender's mission chief for Bangladesh, Asia and Pacific Department, will arrive in Dhaka on November 27 on a two-week visit.

An official of the finance ministry said the mission will hold a final discussion on how much the government has fulfilled the lender's conditions tagged with releasing the second instalment of $1 billion loan.

After detection of irregularities, including the Hall-Mark scam, in the state banks, the global lender asked the central bank to conduct a special "diagnostic examination" in these banks.

The IMF earlier submitted a detailed plan about the examination to the central bank. The IMF mission will want to know about the status of its implementation.

To discuss the visit of the IMF mission, the lender's representative in Dhaka Eteri Kvintradze met Finance Minister AMA Muhith yesterday.

The IMF team will hold talks with the government on issues such as financial soundness indicator, deposit mobilisation and liquidity situation in the state banks.

The new VAT law, amendment to Banking Companies Act, and subsidy on petroleum, fertiliser and electricity will also figure prominently at the discussions.

The IMF delegation will also hold meetings with the officials of the World Bank and the Asian Development Bank.

They will discuss the update on the Padma bridge financing, as well.

The IMF approved around $1 billion loan under its Extended Credit Facility in April and its first instalment worth $140 million has already been released.

Though the second instalment was scheduled to be released in November, the finance ministry official said it may be delayed as the government is yet to fulfil the conditions of the lender.

News: The Daily Star/Bangladesh/16-Nov-12