Raise working capital limit

The Bangladesh Bank yesterday asked banks to raise the working capital limit as the financial strength of many businesses has weakened because of the prices increase in the global market.

The business slowdown derived from the coronavirus pandemic has created a supply chain disruption in the global market, pushing the prices of various goods to an abnormally higher level. The Russian invasion of Ukraine has worsened the situation.

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As a result, the prices of various commodities, including industrial raw materials, have sharply gone up in recent times. It comes at a time when the shipping cost has been on the rise substantially, according to a Bangladesh Bank notice.

Against this backdrop, businesses are facing difficulties to bear the cost of imported goods by using their existing working capital ceiling.

The repayment tenure of working capital is a maximum of one year and lenders set the ceiling of a loan on the basis of the cash flow of businesses.

A central bank official says banks have been instructed to raise the limit of working capital considering the ongoing situation.

The BB, in the circular, mentioned that many importers were now unable to settle import payments although banks have extended the maximum amount of working capital.

The momentum of the country's export and import may face a roadblock, which subsequently may create a potential threat to the economy, it said.

Many borrowers are facing the risk of defaulting on their loans in the wake of squeezing financial capacity, the BB official said.

"Such default risks will be minimised if banks raise the credit limit."