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BB introduces €200m green transformation fund

Bangladesh Bank (BB) has introduced €200 million Green Transformation Fund (GTF) along with the existing US$200 million to set up environment-friendly infrastructures.

A decision has been taken to introduce €200 million along with the existing $200 million. Accordingly, participating Authorized Dealers (ADs) will now be in a position to draw loans in euro from GTF at the rate of Euro Interbank Offered Rate (EURIBOR) plus 1.0 per cent for the admissible purposes.

In the case of EURIBOR remaining in negative territory, ADs will be charged only at the rate of 1.0 per cent against their borrowing from the fund. As usual, ADs shall determine their mark-up above the borrowing cost within the specified range of 1.0 to 2.0 per cent.

The central bank also decided that financing on long term basis (5 to 10 years) from GTF in Euro will be admissible to all manufacturing industrial enterprises for importing of environment-friendly and energy-efficient (including solar energy and renewable energy under power sector) or green capital machinery and accessories (including buyer’s credit).

This GTF in Euro is also to widen the scope to import (only buyer’s credit) industrial raw materials used in all manufacturing enterprises including both export oriented and deem exporters.
The policies of the fund are as follows:
  1. Green Transformation Fund (GTF)-USD
  2. Green Transformation Fund (GTF)-Revised
  3. Green Transformation Fund (GTF) Guidance Note

9 banks, 5 FIs sign TDF scheme

A refinance scheme of BDT 10 billion in the name of Technology Development Fund/Upgradation (TDF) has been established in Bangladesh Bank.

This fund has been established in conformity of ‘Export Policy 2018- 21’ with a view to enhancing competitive capacity and sustainability of the export oriented industries.

The Sustainable Finance Department of Bangladesh Bank organized a signing ceremony of the Participation Agreement (PA) of 9 banks and 5 Financial Institutions (FIs) with Bangladesh Bank on Wednesday.

Mr. Ahmed Jamal, Deputy Governor was present in the signing ceremony as the chief guest. Mr. Md. Shahidul Islam, Executive Director, Mr. Khondkar Morshed Millat, General Manager along-with the concerned officials of Sustainable Finance Department were present in the event. General Manager of Sustainable Finance Department on behalf of Bangladesh Bank and the Chief Executives of Eastern Bank Ltd., Mutual Trust Bank Ltd., Mercantile Bank Limited., Southeast Bank Limited., Exim Bank Ltd., The Premier Bank Ltd., NRB Bank Ltd., Bangladesh Krishi Bank, IPDC Finance Ltd., IDLC Finance Ltd., Bangladesh Finance & Investment Co. Ltd., United Finance Ltd. and Infrastructure Development Co. Ltd. signed on behalf of their respective organizations.

Overview of Technology Development Fund (TDF)

Refinancing Scheme      : Technology Development Fund/Upgradation (TDF).
Purpose of the scheme  : For strengthening the capacity and increasing the sustainability and competitiveness of the units.
Industry Nature              : Must be export-oriented industries.
Fund Size                         : BDT 1000.00 crore
Loan Tenure                    : 5-10 years
Grace Period                   : Not more than one year.
Debt-Equity Ratio         : 70: 30
Interest rate                    :1. 5.00% on the loans having the tenure below five years
2. 5.50% from five years to below eight years
3. 6.00% from eight years to 10 years.

Entitled Organizations: 32 types of industries and 11 types of operations including ready-made garment factories, pharmaceuticals, software and IT-enabled services, jute goods and, footwear and leather goods.

Refinancing Scheme : Technology Development Fund

Bangladesh Bank is forming a Tk 1,000 crore fund to provide cheap loans to export-oriented industries to upgrade technologies they currently use. The eligible industries are of 32 types, all falling under top-priority and special development sectors.

They include ready-made garment factories making high-value additions in production, pharmaceuticals, software and IT-enabled services, jute goods and footwear and leather goods.

The fund will run under a refinancing scheme, meaning banks will first give out the loans before being reimbursed by the central bank.

The interest rate will range between 5 per cent and 6 per cent, according to a central bank document.

The central bank will issue a notice within a week or two to this end. The fund will help make the export-oriented industries more vibrant in keeping with global trends.

The transformation can be brought about in 11 types of existing industrial production-related operations to replace outdated technologies with the latest ones such that industrial production gains momentum.

Replacement of outdated machinery, adoption of technology for renewable energy and upgradation of machinery used in business operations and waste management will get priority.

Interested banks and non-bank financial institutions will have to sign a participation agreement with the central bank.

They can then avail the fund at one percentage point less than the bank rate that happens to prevail at that time.

A bank rate is the interest rate at which a central bank lends money to banks.

Managing the bank rate is a method by which central banks influence economic activity. Lower bank rates can help expand the economy by lowering the cost of funds for borrowers.

Currently, the rate is 4 per cent. If a bank happened to have availed the fund now, it would have been charged 3 per cent.

Banks will be allowed to charge borrowers a maximum three percentage points higher than the rate at which they avail the fund.

The tenures would range from three years to 10 years.

The interest rate for a borrower will depend on the time within which it makes the repayment.

It is 5 per cent for less than five years, 5.5 per cent for between five years and less than eight years, and 6 per cent for eight years to 10 years.

Clients will also enjoy a maximum of one year’s grace period before they start paying the installments.

A 7:3 debt to equity ratio will have to be maintained, which means that a borrower can avail 70 per cent of the upgradation cost from the lender while the remaining 30 per cent has to come from its pocket.

Banks that have non-performing loans of more than 10 per cent of their outstanding loans will not be allowed to avail the fund.

$5.0b IFC investment portfolio likely for Bangladesh

The International Finance Corporation (IFC) plans to fortify its footprint in Bangladesh through extending its investment portfolio to nearly $5.0 billion in the next five years.

IFC wants to expand investment for the private sector in Bangladesh. They’ll double the investment in the next five years.

Bangladesh was a potential place for investments as the economy was growing at a faster rate prompted by the private sector’s contribution.

In the past five years, the IFC, an arm of the World Bank Group, has lent some $2.0-billion loans to the private sector here for business development. Bangladesh’s economy has grown a lot in the last 15 years. The RMG is playing a vital role in boosting the economy.

Moreover, a growing but dynamic population has helped to move the country to a situation where it is closer to graduating from a low-income country. But the current development model… is not enough to go to the next level.

And here is where the private sector needs to play a critical role. The amount of investments that the country needs, the amount of infrastructure that the country need, the amount of attraction for foreign capital the country needs requires a strong private sector. The public cannot do it alone.

About the challenges behind Bangladesh’s weak private-investment portfolio, Bangladesh will be an $800 billion economy by 2030. The only way to enhance its investment-GDP (gross domestic product) ratio to more than 30 per cent is to mobilise capitals.

The current fiscal constraint is not giving you the capacity… Three issues here are critical. Firstly, you need to attract foreign direct investment (FDI). You need to open your economy for external investments. You need to flexibilise your economy to attract capital from the outside.

Secondly, you need to have a strong financial sector that complies with international standards. The financial sector here has many regulations that constrain the capacity. Bangladesh has only some 8.0 per cent credit growth, much lower even compared to the similar level of countries.

Developing countries like Bangladesh should have the credit growth at least between two and three times than the nominal GDP growth. The credit should grow at 20 per cent at least.

Actually, many existing regulations are the constraints to the enhancement of the credit growth of this country which you have to resolve first, the Spanish-origin IFC executive told the FE.

The public-private partnership (PPP) is a good model for attracting more capital in energy, healthcare, housing, transport and telecom sectors here. But you need to have a very strong, robust and credible PPP framework with international standards that can attract more FDI.

The banking sector here is facing another challenge that is interest rate cap. You want to reduce the higher rate so that people can avail the bank loan, right? But problem is—you have forced the bank to cut the rate. But the bank cannot lend the credit at 9.0 per cent if its cost of fund remains higher. So you need to reform the financial sector first.

About heavy dependency on single-export economy, Bangladesh should create a competitive environment for other export-oriented sectors too.

The higher investment plan is to help Bangladesh for market diversification in the international trade market. We want to help a number of projects which can facilitate market diversification.

Since 2000, it has invested more than $3.5 billion to help Bangladesh’s private-sector growth.

Some key sectors for future investment opportunities include transport and logistics, energy, financial services, light manufacturing, agribusiness, healthcare and pharmaceuticals.

Bangladesh Taka slides amid high demand for US dollar

Bangladesh Taka (BDT) has depreciated by Tk 1.0 against the US dollar (USD) in nearly three months despite selling of the greenback by the central bank to the banks for keeping the market stable.

The US dollar was quoted at Tk 85.80 each in the inter-bank foreign exchange market on Wednesday against Tk 84.80 on August 17 last. It was Tk 85.75 on Tuesday.

The local currency started depreciating since August 18 last amid growing demand for the US dollar in the local market, according to market operators.

The growing demand for the greenback has been created mainly due to higher import payment obligations following big purchases of textile products along with an upward trend in various commodities including fuel oil in the global market, they explained.

Economists and market operators said that the continued depreciation of the local currency against the US dollar has pushed up prices of imported items in the domestic market.

They, however, added that the exporters and remitters were being benefited from the loss of value of the local currency against the greenback.

Higher depreciation of the local currency against the US dollar may hit the low-income people. Bangladesh Bank should continue with its foreign currency liquidity support to the banks to ease the demand for the greenback in the market.

The gradual depreciation of the local currency will put extra pressure on the price level of imported commodities, according to a former managing director of a state-run bank.

Such depreciation helps boost export earnings and inflow of remittance. But imports will be costlier in the near future.

The BDT’s latest depreciation came against the backdrop of higher outflow of foreign exchange than inflow in recent months, the market operators explained.

Actually, the lower inflow of remittance and higher import bills have built up pressure on the country’s forex reserves, leading to a steady devaluation of the BDT, they added.

The flow of inward remittances dropped by nearly 20 per cent to $7.05 billion during the July-October period of the current fiscal year (FY 2021-22) from $ 8.81 billion in the same period of the previous FY, the BB data showed.

Meanwhile, the actual import in terms of settlement of letters of credit (LCs) jumped by 47.18 per cent to $11.02 billion during the July-September period of FY’22 from $9.90 billion in the same period of FY’21.

However, the opening of LC, generally known as import order, rose more than 49 per cent to $ 19.90 billion during the period under review from $13.31 billion in the same period of FY’21.

The central bank has continued its foreign currency support to the banks for settling import payment obligations particularly of fuel oil, fertiliser and capital machinery.

As part of the move, the BB sold US$20 million directly to a state-owned commercial bank (SoCB) on Wednesday. In FY’22, it has so far sold $1.63 billion from the reserves directly to the commercial banks.