Banks cut loans to spinners hit by volatile cotton prices

Express (August 19, 2011)

Commercial banks have restricted credit flow to the spinning mills as the once booming industry is now struggling to stay above water due to volatile cotton prices and an acute energy crisis, officials said Thursday.

Bankers said they are not going for any further exposure of their credit fund to the sector as they are not sure whether the spinning mills will be in a position to repay the loans in time -- a fear stemming from the spinners' recent heavy losses.

Spinners who turn cotton into yarn bought the crop when the global market was at its peak. They built up a big inventory of yarn worth Tk120 billion as garment makers prefer cheap Indian yarn over costly local production.

Islami Bank Bangladesh Limited (IBBL), a leading investor to the country's textile sector, said its lending to the spinning industries came down sharply in recent months.

"We've limited our exposure to the spinning sector and are moving slowly," managing director of the IBBL Abdul Mannan said, adding that during the boom time the bank's credit helped build 53 spinning mills.

"The sector has been facing bad time since late 2008 when it was first hit by energy crisis. But in recent months volatile cotton prices in the international market have affected almost every spinner in the country," he said.

Islami Bank which is the country's largest institutional lender in the private sector, has lent nearly Tk 70 billion fund to the primary textile industry, which is the main supplier of raw materials to the country's 4,500 garment plants.

"During this time of the year we would have a lot of loan proposals from the spinners. But as they are passing through the worst time of their business, we hardly get new proposals," said Mr Mannan.

Managing Director of Agrani Bank -- the country's third largest state-owned commercial bank -- Syed Abdul Hamid said their bank has also "stopped funding to the spinning sector over the last one and a half years".

"We are not in a position to lend the country's spinning sector at this moment," he said, adding fears over the spinners' financial health and the bank's somewhat mismatched credit-deposit ratio led to the cut in fresh lending.

A top banker at the Mercantile Bank Ltd. said they have also lowered their lending to the spinning sector as their working capital has been stuck-up due to non-payment by the hard-hit spinners.

Jahangir Alamin, president of Bangladesh Textile Mills Association (BTMA), said most spinners are bleeding for over six months and they are struggling to repay the existing loans to the banks.

"In the past, the banks used to prod us to get fresh loans for expansion. But these days they discourage us to expand factory or set up new yarn or fabric manufacturing units," he said.

"Some spinners have even stopped taking working capital as they don't have any order to process," he said.

Abdul Matin Chowdhury, former chairman of the BTMA said Indian spinners have cashed in on the latest woes of the Bangladeshi companies as they dumped yarn at a cut-throat price to the local garment makers.

"My annual turnover was Tk3.0 billion last year. In the past two months my businesses have declined by about 75 per cent," Mr. Chowdhury, managing director of the Malek Spinning, added.

The former BTMA chief is worried over the future of the local spinning industry saying yarn production has declined by around 50 per cent in the last six months.

"Under such a wretched conditions, who is going to lend us money?", he observed.