The Bangladesh Bank has today asked banks to increase their working capital volume as the financial capacity of many businesses is declining due to rising world prices of various goods.
The downturn in business due to the coronavirus pandemic has created supply chain disruption in the global marketplace, playing a role in the exponential increase in commodity prices.
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The Russian invasion of Ukraine further aggravated the situation.
Prices of various commodities, including industrial raw materials, have risen sharply at a time when transportation costs have risen significantly, according to a notice from the Bank of Bangladesh.
Against this backdrop, businesses have found it difficult to pay the cost of imported goods using the existing working capital limit set by banks.
The working capital repayment period is a maximum of one year and the lenders set the loan ceiling taking into account the companies’ cash flow.
A central bank official said banks were instructed to extend the working capital limit given the current situation.
The BB in the circular mentioned that many importers were now unable to settle their imports despite the fact that the banks had provided them with the maximum amount of working capital.
The country’s export-import mobility may face an obstacle, which could subsequently create a potential threat to the economy, he said.
Many companies are now at risk of default as a result of diminishing financial capacity, the BB official said.
This default risk will be minimized if banks increase the corporate credit limit, he said.