Banks lower rates further in April
The country’s scheduled banks in April cut their interest rates on lending further against the backdrop of the businesses’ persistent reluctance to borrow from banks due to a sluggish business situation worsened by political uncertainties and vulnerable law and order situation, said Bangladesh Bank officials. According to the latest BB data, the weighted average interest rate on lending in the banking sector declined to 10.6% in April from 10.8% in March 2016. The weighted average rate on lending was 10.9% in February and 11.1% in January of this year. The weighted average interest rate on lending had declined throughout last year. It dropped (from 12.3% in January 2015) to 12.2% in February, to 11.9% in March, to 11.9% in April, to 11.8% in May, to 11.7% in June, to 11.6% in July, to 11.5% in August, to 11.5% in September, to 11.4% in October, to 11.3% in November, and to 11.2% in December 2015. The banking sector was forced to maintain the downward trend in the lending rate due to a sluggish credit demand from the businesspeople amid political uncertainties and fragile law and order situation, a BB official told New Age on Thursday. The BB data shows that the weighted average interest rate on deposit of the banks also decreased to 5.8% in April from 5.9% in March of 2016. The BB official said that majority of the banks had recently cut their interest rates both on deposits and lending in the face of dull business. Due to the lower credit demand from the industrial sector, banks are now having huge excess liquidity that has forced them to rush to invest in government treasury bills and bonds.
Life insurers to add 43 new indicators to yearly reports
The insurance regulator has taken a move to bring reforms to the life insurers’ annual reports with inclusion of many disclosures on financial affairs to change the companies’ age-old practices of hiding important indicators. The Insurance Development and Regulatory Authority (IDRA) believes it will reduce the life insurance companies’ tendency of hiding many important financial matters and make the reports more transparent. IDRA has asked 31 life firms to prepare their annual reports in the new format, incorporating new 43 financial indicators. Currently the companies prepare their annual reports as per the Insurance Act 1938. The life firms have to follow the new format in preparing their latest reports of 2015. They have to submit their reports to the regulator within June 30.
Managing Director crisis hits financial sector hard
The bank and insurance sectors have long been facing crisis as there is a lack of managing directors in the market. On the other hand, the age limit on service set by the respective authorities add salt to the wounds. Due to age restriction, the seasoned managing directors for banks and insurances fail to contribute to their service sectors despite having capacity to work with dexterity. The job contract of four state-owned banks’ managing directors – Sonali, Janata, Rupali and Agrani – will end soon this year, but they have a chance to get an extension till they are 65 as per the Bangladesh Bank rule. The four are M Farid Uddin of Rupali Bank, Pradip Kumar Dutta of Sonali Bank, Abdus Salam of Janata Bank and Syed Abdul Hamid of Agrani Bank. Unlike Bangladesh, in India and Pakistan, the age limit for the top post of bank companies is 70 years. Mustafa K Mujeri, economist and former director general of Bangladesh Institute of Development Studies, suggested that the government consider relaxing the age restriction of 65 years for managing director posts as the average life expectancy and working ability have increased.
Government moves to slash interest rate under the capital market refinancing scheme by 1.0%
Against the backdrop of poor response from small investors to get loan under the capital market refinancing scheme, the government has taken a move to reduce the interest rate by 1.0%, officials said. At present, the interest rate is 9.0% which small investors find high in comparison with the interest rate of available loans in the market, they said. As a result, some BDT 2.3 billion out of BDT 9.0 billion ‘stock market affected small-investors assistance fund’ remained undisbursed. Executive Director of Bangladesh Securities and Exchange Commission (BSEC) Saifur Rahman in a recent letter to the Ministry of Finance (MoF) expressed doubt about disbursement of the remaining fund unless the interest rate is reduced. He also suggested extending the timeframe for obtaining loan under the scheme by one more year, until December 2017, for smooth implementation of the incentive package as the tenure of the scheme is set till December 2016. The government formed the BDT 9.0 billion fund in July 2013 aiming to prop up the capital market and mitigate the sufferings of investors who were affected during the 2010-11 stock market debacle.
Investment-GDP ratio rises in FY16
The ratio of investment to GDP in the outgoing fiscal year (FY16) slightly rose to 29.4% compared to that of the previous fiscal year with the share of public investment increasing to 7.6% and private investment to 21.8%, reports UNB. The Bangladesh Economic Survey, 2016 revealed this quoting the provisional figures of the Bangladesh Bureau of Statistics (BBS). The survey data showed that the ratio of investment to GDP was 28.9% in the fiscal year 2014-15 due to the development in investment situation. The private sector’s investment ratio to the GDP was then 22.1% and public investment ratio 6.8%. The investment ratio to the GDP in the FY 2013-14 was 28.6%, including 22.0% private investment and 6.6% public investment. The Economic Survey figures revealed that the domestic savings ratio to the GDP in the FY16 increased to 23.9% compared to 22.2% in the previous fiscal year FY15. The gross national savings ratio to the GDP also increased to 30.08% in FY16 compared to 29.02% recorded in the previous fiscal FY15 due to low growth in remittance inflow. The investment ratio to the GDP has been hovering over 26.0% in the last couple of years. It was 26.2% in the 2007-08, 26.2% in 2008-09, 26.2% in the 2009-10, 27.4% in the 2010-11, 28.3% in 2011-12 and 28.4% in 2012-13.
Export Promotion Bureau (EPB) targets USD 37.0 billion export
The Export Promotion Bureau (EPB) will propose setting the country’s export target at USD 37.0 billion for the upcoming fiscal year (FY) 2016-17, officials said. The EPB has projected the target, which sees an 8.8% or USD 3.5 billion rise over the current fiscal year’s export target of USD 33.5 billion. The proposed target was placed at a meeting of the EPB Wednesday where leaders of major export-earning sectors, including ready-made garment and frozen fish, differed with the government’s projection, saying that it might not be achievable if the proposed 1.5% source tax is implemented. The EPB also expected that the country’s total export receipts would reach USD 34.0 billion by the end of this FY, reflecting an 8.95% growth over the previous fiscal. For the current fiscal year, all 21 major export items, except for frozen fish and plastic, have been projected to grow. These include knitwear at 6.3%, woven garments 11.7%, leather and leather products 0.9%, medicines 13.54%, jute and jute goods 5.01% and footwear 14.8%.
Government projects BDT 55.0 billion additional revenue in next fiscal year
The government has projected an additional revenue income worth BDT 55.0 billion in the upcoming fiscal year (FY) with readjusted VAT and customs-related measures in the deficit budget. The National Board of Revenue (NBR) has prepared the projection on the basis of upward and downward revisions of the tax measures dealt by its two wings. In the estimation for FY 2016-17, the board eyes an additional amount of BDT 43.3 billion that would be mobilized from new tax measures by the Value Added Tax (VAT) department. It also projects BDT 11.74 billion additionally from the upward revision of customs duties. For the VAT wing, major new budgetary measures include increase in tax on tobacco items, upward revision of VAT rate on construction services and supplementary duty on mobile- phone uses. The VAT department estimates BDT 24.9 billion worth of additional revenue from cigarettes, bidi, jarda and gul due to hike in their supplementary duty and price slab in the budget. The VAT wing outlined the gross estimate of revenue collection in a paper placed before Finance Minister AMA Muhith during budget discussion. In the Finance Bill 2016, VAT rate on construction services has been increased to 6.0% from 5.5%. The VAT department estimated an additional BDT 7.0 billion from this sector in the upcoming fiscal.
Government underwriting liabilities on its affiliates’ deals fall
The volume of government guarantees and counter-guarantees against loans negotiated by different state-owned financial and non-financial enterprises has fallen this year on the back of global energy slump, easing its liabilities, officials said. Such guarantees are believed to be risky for government’s fiscal management as the guarantees are invoked and the liabilities for payment passed on to the government if the contracting organizations fail to pay their debts in time. As of June 30, 2016, total guarantees may amount to BDT 474.24 billion, down by nearly 20.0% from the June 30, 2015 mark, according to government documents. The guarantees mentioned above are in face value as, if the time is extended, the interest rate and other similar issues are usually further negotiated. People familiar with the developments at the finance division told the FE that the government issued much less number of guarantees in energy sector in fiscal 2016 for rock-bottom prices of fuel oils on the international market. Also, they said, new deals are fewer and consequently the old ones are expired or being repaid, resulting in fall in aggregate government liabilities.
World Stock and Commodities
|Index Name||Close Value||Value Change||Percentage Change|
|Crude Oil (WTI)*||$49.07||(1.49)||(2.95%)|
|Crude Oil (Brent)*||$50.54||(1.41)||(2.71%)|
|Dow Jones Industrial Average||17,865.34||(119.85)||(0.67%)|
|USD 1||BDT 78.20*|
|GBP 1||BDT 111.49*|
|EUR 1||BDT 87.98*|
|INR 1||BDT 1.17*|
*Currencies and Commodities are taken from Bloomberg.