Increase working capital limit | The star of the day

The Bangladesh Bank yesterday asked banks to raise the ceiling on working capital, as the financial strength of many companies has weakened due to rising prices in the global market.

The slowdown in business due to the coronavirus pandemic has created a supply chain disruption in the global market, pushing the prices of various goods to abnormally high levels. The Russian invasion of Ukraine has aggravated the situation.

As a result, the prices of various commodities, including industrial raw materials, have risen sharply in recent times. This comes at a time when shipping costs have increased significantly, according to a notice from Bangladesh Bank.

In this context, companies are finding it difficult to bear the cost of imported goods using their existing working capital ceiling.

The working capital repayment period is a maximum of one year and the lenders set the ceiling for a loan according to the companies’ cash flow.

A central bank official said banks have been instructed to raise the working capital limit given the current situation.

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

The country’s export and import momentum could hit a snag, which could subsequently create a potential threat to the economy, he said.

Many borrowers face the risk of default on their loans as a result of the squeeze on financial capacity, the BB official said.

“These default risks will be minimized if banks increase the credit limit.”