Bangladesh: Banks cautious about crisis-ridden spinners

Banks have tightened their belt on fresh loans for spinners who are now facing a downtrend in business due to a low demand for yarn, businessmen said.

The banks are also asking the spinners to pay back the loans borrowed earlier for cotton import, so that the loans do not become classified, they added.

Now the banks are showing reluctance in giving fresh loans for importing cotton as the spinners can hardly pay back the loans for a low demand for yarn from knitters and weavers.

As a result, stockpiling of unsold yarn is increasing everyday as the knitters and weavers prefer importing yarn from India and China rather that buying from the local spinners at higher prices.

The spinners now cannot sell the yarn at lower prices as they have spun the yarn from costly cotton imported since last year up to March this year.

A mismatch has been created between the production cost and the current market price of yarn, although the market has now started rebounding to an extent, said Md Habibur Rahman, deputy managing director (investment wing) of Islami Bank Bangladesh Ltd.

“In the present situation we are discouraging fresh LC (letter of credit) opening on contracts as many of our clients doubled the loans on working capital for importing cotton last year, when the price of the fibre went abnormally high on the global market,” he said.

He said Islami Bank, which has the highest exposure in the spinning sub-sector, is advising the spinners not to stockpile the yarn for a long time so that they can repay the loans in time.

“Many of our clients are in trouble, although their loan is not classified yet. We have a policy that we will stand beside our entrepreneurs so that they need not to shut down their factories,” he said.

Echoing with the views of Rahman, Managing Director of Dhaka Bank Ltd Khondker Fazle Rashid said most of the spinning mills have suffered huge losses from the latest blow of the price fall of yarn.

He said Dhaka Bank is also discouraging LC opening against contracts as there is a chance that loans might be defaulted.

“We are shaky, but at the same time we are trying to rid them of the trouble through extending different supports,” he said. “We are a bit cautious, although no loans of the spinners are classified yet,” he said.

SK Sur Chowdhury, an executive director of the central bank, said no case was identified so far as classified loan in the spinning sub-sector.

“But, we are monitoring the matter regularly so that the loans do not become classified,” Chowdhury said.

Saleudhzaman Khan Jitu, managing director of NZ Textiles Ltd at Bhulta in Narayanganj, said: “My bank has already cautioned me about the loan repayment. The amount of my loan is Tk 100 crore. My bank is not accepting any fresh LC against contract as they think I will not be able to make profit from the downward market of yarn.”

Masud Rana, managing director of Asia Composite at Maona, said his bank did not send him any letter yet, but there is a pressure to pay back the loan so that it is not classified.

He said he has lowered production to 10 tonnes of yarn per day since April this year from 25 tonnes per day for a low demand on the local market.

Razeeb Haider, managing director of Outpace Spinning Mills Ltd in Gazipur, said yarn prices now started rebounding due to a rise in demand.

At present, widely consumed 30-count yarn is sold at $4.20 per kg compared to $3.50 per kg two weeks ago.

Jahangir Alamin, president of Bangladesh Textile Mills Association, said the government has assured them of increasing the incentives for garment exporters from the existing 5 percent although the millers demanded a 15 percent rise.

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