Business Bulletin. Highlights

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1 Best regards, The Bangladesh Rating Agency TEAM Business Bulletin (January 1, 2019; Number: 67) NEWS SECTIONS Highlights Country News SME News International News BDRAL Photo News Highlights Private credit growth on downward slope Private sector credit growth remained slow in October as bankers lent cautiously ahead of polls. In October, credit growth stood at 14.7 percent, which is the same as in the previous month, according to data from the central bank. The government is likely to borrow about Tk 13,000 crore from banks in December, which will make the money market tighter. The average interest rate on deposits stood at 5.25 percent in October, up from 4.89 percent a year earlier, according to the central bank. Public sector borrowing, which remained negative for long, logged in 2.6 percent growth in October, but it remains well below the 8.60 percent ceiling set for the first half of the fiscal year. Stock Market Indices Index 27-Dec-18 2-Dec-18 % Change DSEX % CSCX % Currency Market Pair 31-Dec-18 1-Dec-18 %change BDT/USD GBP/USD EUR/USD JPY/USD Commodities % -0.09% 1.49% 3.40% 31-Dec-18 3-Dec-18 Brent (US$/bbl) Gold (US$/troy ounce; LBMA) Copper (US$/tonne; LME) Aluminiumm (US$/tonne; LME) Dear Sir/Madam, Happy New Year 2019! The Bangladesh Rating Agency Limited (BDRAL) is pleased to bring to you the Business Bulletin for the month ended on December 31, The bulletin tracks the month s key events and trends in the commodity and currency markets along with a round-up of regional and global news. We hope you enjoy reading this issue and look forward to your comments/suggestions. Thank you. Please follow the link below to view the pdf version of previous month s bulletin: content/uploads/2018/12/bdral-business- Bulletin-December pdf Remittance drops in Nov Remittances fell 3.14 percent year-on-year to $1.17 billion in November despite the depreciating trend of the taka against the US dollar. Bankers and experts did not find any major reason for the fall and said it might be a

2 temporary phenomenon as the interbank exchange rate between the US dollar and the taka is favourable for the near and dear ones of the remitters. Between July and November, remittance incomes stood at $6.28 billion, up nearly 8 percent from that a year ago, according to data from the central bank. Country News FDI inflow sees uptrend: The latest statistics on the BoP showed that net FDI inflow declined by around 8.0 per cent during the July-October period to $440 million. It was $475 in the corresponding period last year. Meanwhile, gross FDI inflow rose by around 39 per cent to $960 million from July to October of The amount was $693 million in the same period in Again, the central bank survey data showed that net FDI inflow in the first half (January-June) of the outgoing year stood at $ billion. The amount was 44 per cent higher than that of the same period of the last calendar year. Adding the first-half data to the BoP data on FDI in the July-October period, the net inflow of FDI in first 10 months of 2018 stood at $ million. The annual net FDI inflow in 2017, however, stood at $ million. Inflation sinks to 18-month low: Inflation dropped to the lowest in 18 months in November on the back of a fall in non-food inflation. Last month, inflation stood at 5.37 percent, down 3 basis points from October, according to the Bangladesh Bureau of Statistics. The last time inflation was this low was back in March 2017, when it stood at 5.39 percent. Non-food inflation dropped 41 basis points to 5.49 percent in November, after climbing 45 basis points in October from a month earlier. Non-food inflation dropped as the exchange rate remained stable, said Planning Minister Mr. AHM Mustafa Kamal. In November, food inflation rose 21 basis points to 5.29 percent from the previous month. About November's spike in food inflation was due to rise in meat price, according to Mr. Kamal. Trade deficit falls by 8pc in Jul-Oct: Country s trade deficit eased by 8 per cent in the July-October period of the current fiscal year of compared with that in the same period of last fiscal year of due mainly to the shifting of orders for readymade garment products from western buyers to Bangladesh amid the ongoing trade war between the USA and China. According to Bangladesh Bank data released on December 12, 2018, trade deficit stood at $5.32 billion in the first four months of FY19 from that of $5.78 billion in the same period of FY18. In July-October this year, the country s export earnings grew by per cent to $13.40 billion from that of $11.35 billion in the same period of last year. Import payments grew by 9.28 per cent year-on year to $18.73 billion in the period. Export earnings grow 17.24pc in first five months of FY19: Country's exports fetched $14.56 billion during the July-November period of the FY The export performance was per cent higher than the target set for this period. The single month earnings in November last Credit Rating Section What is SME Credit Rating? SMEs are an important source of investment, employment, entrepreneurship and innovation. A vibrant SME sector leads to a vibrant economy. However, in developing countries, SMEs find it difficult to access finance, even at a high cost. In Bangladesh, about 90% of private-sector businesses are SMEs. They contribute between 80 to 85% of industrial employment and 23% of total civilian employment. To progress further, the SMEs need to attract talent, get international visibility and easier access to finance. The stumbling block is a lack of transparency and trust. All these lead to the need for a Credit Rating System. SME Credit Rating is a comprehensive and independent third-party evaluation of the SME. It takes into account the financial position and several qualitative parameters of the SME that have a bearing on the creditworthiness of the entity. It conveys the probability of the subjects ability to pay back a loan or obligation to the lender or the investor. BDRAL and Bangladesh Bank have jointly developed a rating methodology for the SME which is also followed by SMERA Ratings Limited in India with whom we have technical collaboration. Why SME Credit Ratg? Adequate credit flow to SMEs helps in driving the overall growth of the economy. Banks and Financial Institutions in Bangladesh receive support in SME financing initiatives from Bangladesh Bank, Government of Bangladesh and development partners like IDA, ADB and JICA. But, the Banks & Financial Institutions (FIs) are compelled to depend on non-core skill-sets leading to assumptions based accounting and increased dependence on inconsistent Data Collection. The absence of industry benchmarks, inadequate industry understanding, and an irregular system of monitoring has combined to increase the problems. The resulting Market Gap calls for an experienced and competent SME rating agency, which can deliver detailed credit Rating Report with scoring/rating, research assistance on SME cluster, overall sector based studies and Product Portfolio Guide (PPG) on all SME banking products. Banks and other financiers need tools to assess credit risk for SMEs in a scientific manner. In the developing world, subsidies or interest rate and tax concessions have not succeeded in building a strong and transparent SME sector. An international Credit Rating Agency brings in globally recognized research and benchmarks, supports financial innovation and deepens the credit culture and risk management in the Bangladesh SME sector; thus, addressing the stumbling block which is lack of transparency and trust. All these lead to the need for a Credit Rating System.

3 grew by per cent to $3.42 billion from $3.05 billion in 2017, according to the Export Promotion Bureau (EPB) data released on December 5, The November performance also surpassed the target set for the month by per cent. Import growth moderate: Bangladesh's import maintained moderate growth of 9 percent between July and October in the current fiscal year. According to data from the central bank, letters of credit settlement stood at $17.64 billion in the first four months of , up from $16.19 billion in the same period a year ago. From July to October, import of capital machinery amounted to $1.64 billion, down from $1.74 billion in the same period last fiscal year. In , import payment surpassed $58 billion, the highest in the country's history. The higher import created a major crisis for the BoP as both the trade balance and the current account posted a record deficit. BB's forex support rises to $1.0b so far this fiscal: The central bank has so far sold nearly US$1.0 billion this fiscal year directly to the commercial banks for settling their import payment obligations. Import bills soared on fuel oils, capital machinery for power plants, LNG (liquefied natural gas) and fertilisers. A total of $976 million has been sold to the commercial banks since July 01 during the FY , as part of its ongoing support, the BB data showed. The central bank sold $ 2.31 billion in the FY 18 on the same ground. BDRAL News - BDRAL has rated more than 15,000 SME businesses up till now. - Research Department s Activities include: Publications: SMEs of Bangladesh Training Program Cluster Analysis Customized Research Monthly Business Bulletin Quality Data Collection Secondary Research Tax collection deficit reaches Tk b: Aggregate shortfall in tax revenue collection against the target widened further, marking a deficit amounting to Tk billion in the first four months of the current fiscal year (FY), The shortfall was about Tk 114 billion in the first quarter (July-September) of FY 19. NBR collected Tk billion tax in July-October period against its target of Tk billion. In July- October period, the three wings of NBR - Income Tax, Value Added Tax (VAT) and Customs - missed their targets by per cent, per cent and per cent respectively. Shortfall in VAT collection stood at the highest of Tk billion, and it posted the lowest growth of 2.11 per cent against the corresponding period. Customs duty collection fell short of the target by Tk billion, and income tax collection by Tk billion. In July-October, Income Tax Wing collected Tk billion, followed by VAT Wing Tk billion, and Customs Wing Tk billion. Tax collection from DSE slides by 19pc in Nov: The government s evenue collection from Dhaka Stock Exchange dropped further by per cent or Tk 3.61 crore in November due to a decline in turnover on the bourse. In November, National Board of Revenue received just Tk crore in taxes that included Tk crore as tax on turnover and Tk 3.67 crore as tax on sponsor-directors capital gains from share sales. In October, the government s tax receipts from the bourse were Tk crore when Tk crore was collected as taxes on turnover and Tk 6.21 crore as taxes on sponsor-directors profit from share sales. DSE profit falls 16pc in FY18: The net profit of Dhaka Stock Exchange (DSE) fell by per cent in last financial year ( ) due mainly to a prolonged bearish trend at the market with a fall in turnover. On December 18, 2018 it has approved its financial reports for FY18 and recommended 5 per cent dividend for its shareholders. According to DSE sources, profit of DSE declined to Tk crore in FY18 from Tk crore in FY17. Considering 180,37,76,500 shares of DSE, its earnings per share decreased to Tk 0.58 in FY18 from Tk 0.69 in FY17. The total turnover on the bourse was Tk 1,59,085 crore in FY18 with a daily average turnover of Tk crore, while the figures were Tk 1,80,522 crore and Tk crore respectively in the previous fiscal - BDRAL CEO has been appointed as Bangladesh Country Officer for the International Federation of Green & Global Information & Communication Technology (IFGICT): L-CEO-madeBangladesh-countryofficer-for- sun.com/printversion/details/295353/bdra IFGICT - BDRAL CEO has participated in a workshop on Employability Skills Development organized by BUBT (July, 2018): oyability_skills_development_july The Bangladesh Rating Agency Limited (BDRAL) signed a MoU with Bangladesh University of Business & Technology (BUBT): - BDRAL CEO s Interview with ICE Business Times (December, 2015): - BDRAL CEO s interview with Bangladesh Apparel Online: room/news-events/ - To learn more about BDRAL, please visit: Head Office Info: Address: The Bangladesh Rating Agency Limited, 47 Karwan Bazaar, Latif Tower (12th Floor), Dhaka-1215, Bangladesh; Telephone (PABX): , Direct lines: Accounts and Billing: Client Care: General Inquiries: info@bdral.com Accounts & Billing:credit.control@bdral.com Customer Care: client.care@bdral.com Join us on our Facebook page

4 year. The key index, DSEX, lost points, or 4.43 per cent, to 5, point in FY18. Banks' provisioning shortfall swells in nine months: A total of 12 banks (4 state-owned commercial banks & others are private lenders), out of 57, failed to keep the requisite provisions against loans, particularly the NPLs, in the third quarter (Q3) covering July-September period of 2018, the BB data showed. Overall shortfall in provisioning against loans in the country's banking system swelled by over 20 per cent or Tk billion during the first nine months of the year. The total amount of provisioning shortfall rose to Tk billion as on September 30 from Tk billion nine months ago, according to the central bank's latest statistics. The shortfall was Tk billion as on June 30 this year. It was Tk billion a year before. Farm loan disbursement drops by 9.17pc in Jul-Nov: Loan disbursement by banks to farmers dropped by 9.17 per cent or Tk crore in the July-November period of this fiscal year compared with that in the same period of the previous fiscal year amid worsening liquidity shortage in the banking sector. State-run, private and foreign banks disbursed Tk 7, crore in farm loans in the five months of FY against Tk 8, crore disbursed in the same period of FY , according to the latest Bangladesh Bank data. Besides, overdue amount in the farm loan segment increased to Tk 6, crore or 17 per cent of Tk 39, crore in outstanding loans in the sector at the end of November this year. SME News Women entrepreneurs fall far behind others: Women entrepreneurs, due to lack of their knowledge and the complex loan procedures, have fallen far behind others in getting access to SME loans over the years though the overall SME financing keeps rising. According to data available with the central bank, the disbarment of total SME loan in the FY was about Tk 1.56 trillion, while the women entrepreneurs could manage only Tk billion or 3.37 per cent of the total SME loans. FIs need to increase the SME loan disbursement target: The banks and non-bank financial institutions (NBFIs) will have to increase the SME loan disbursement target from existing 10 per cent to 15 per cent of the total target by 2021, said Mr. Shaikh Md. Salim, BB General Manager of SME and Special Programmes Department. The banks and NBFIs could not yet achieve even the 10 per cent financing target, he said, adding that they were financing only 3 per cent of the total portfolio. Over 51 per cent of the total loans disbursed by the banks and NBFIs during the period went to the trading sector alone while the manufacturing subsector received per cent. The BB issued a circular in June of last year asking the banks and NBFIs to gradually bring down the annual lending target for the trading sector to 35 per cent by Notice BB recognizes BDRAL as a specialized rating agency to have a partial access to the CIB Information of the SME borrowers through banks/fis for the sake of calculating Default Matrix & Transition Matrix and also bank relationship risk measurement- as indicated by BB in its Credit Rating Methodology for SME enterprise. While we endeavor to ensure accuracy of information, we do not accept any responsibility for any loss or damage to any person resulting from it. To unsubscribe- please write to businessbulletin@bdral.com with Unsubscribe in the subject line Warning! Counterfeit BDRAL Reports! It has come to our attention that, some companies are submitting fake BDRAL credit rating reports to different banks for bank loans. Therefore, bankers are requested to cross check the validity of the reports with the BDRAL Client Care service, either by calling at or by at client.care@bdral.com. All our reports contain contact information of the analysts who worked on the report preparation and we maintain a specific format. So, if anything looks unfamiliar of appears doubtful, please verify the reports. We appreciate your continuous support. International News Eurozone inflation slows to 2pc in November: Eurozone inflation slowed in November, official data showed on November 30, 2018, lending support to rising fears that economic activity in Europe is cooling. Eurostat said consumer prices in the 19-country single currency bloc fell to 2.0 percent in November, right at the target level of the European Central Bank. The EU data agency said unemployment remained stable in October in the euro area at 8.1 percent for the fourth consecutive month, its lowest level since November The inflation data lands as the ECB is widely expected to end mass buying of government and corporate bonds, known as "quantitative easing", next month. Asia to grow as expected in 2018, 2019: ADB has maintained its 2018 and 2019 economic growth estimates for the region at 6.0 per cent and 5.8 per cent, respectively, according to its Asian Development Outlook released on December 12, The ADB also kept its 6.6 per cent and 6.3 per

5 cent growth projections for China as well as its 7.3 per cent and 7.6 per cent growth expectations for India for both years, reports Reuters. The 2019 growth outlook for Central Asia was raised to 4.3 per cent, from the September projection of 4.2 per cent, the ADB said, but the forecasts for Southeast Asia and South Asia for next year were lowered to 5.1 per cent and 7.1 per cent, respectively. Canada economy grows 2pc in Q3: Canada's economic growth slowed in the third quarter to 2.0 percent from 2.9 percent despite a boost in mining and petroleum refining as foreign demand pushed up prices, according to government data out on November 30, In the three months to September 30, overall corporate earnings increased, household spending slowed, motor vehicle purchases fell for a third consecutive quarter, and investment in new residential construction saw the largest decline since 2009, while spending on renovations was also down. India economic growth slows to 7.1pc: India's economic growth slowed to 7.1 percent in the second quarter, official data showed on November 30, 2018, as its banks endure a liquidity crunch that is hampering investment in Asia's third-largest economy. Central Statistics Office figures showed GDP growth for July to September of the financial year slowed from 8.2 percent in the previous quarter. Despite the slowdown, the latest figures were up from 6.3 percent for the same period last year and reinforce India's status as one of the world's fastest-growing economies. India's trade deficit narrows to $16.67b: India's November trade deficit narrowed to $16.67 billion due to a fall in gold imports, the country's trade ministry said in a statement on December 14, In October, the trade deficit was at $17.13 billion. India's gold imports fell percent to $2.76 billion in November, data showed. The country's oil imports, however, increased in November to $13.49 billion, up 41.3 percent from a year earlier, the data showed. India to hold top position in remittances with $80 billion: India will retain its position as the world's top recipient of remittances this year with its diaspora sending a whopping 80 billion US dollar back home, the World Bank has said. India is followed by China ($67 billion), Mexico and the Philippines ($34 billion each) and Egypt ($26 billion), according to the global lender.the World Bank estimates that officially-recorded remittances to developing countries will increase by 10.8 per cent to reach $528 billion in This new record level follows a robust growth of 7.8 per cent in French budget deficit seen at 3.4pc of GDP next year: France's budget deficit is likely to overshoot the European Union's limit of 3 percent of GDP next year and reach 3.4 percent, National Assembly president Richard Ferrand told Sunday s newspaper Le Journal du Dimanche. France is expected to break the deficit ceiling after President Emmanuel Macron made concessions to anti-government protesters earlier this month, blowing a 10 billion euro ($11 billion) hole in the budget. Turkey inflation drops from 15-year high: Turkey's inflation dropped for the first time to nearly 22 percent last month after surging to a 15-year high in October, official statistics showed on December 3, The increase in consumer prices fell to percent in November compared with the same month last year, still very high in relative terms but down from the percent rate recorded in October and the first drop since March this year, according to the Turkish statistics office (TUIK).

6 BDRAL Photo News Mr. Md. Safiqul Islam, Managing Director of SME Foundation is receiving a gift bag from BDRAL Research Team on December 9, Mr. SM Shaheen Anwar, Deputy Managing Director of SME Foundation is receiving a copy of Vol.4 of BDRAL Publication titled SMEs of Bangladesh on December 9, 2018 from BDRAL Research Team. Mr. Md. Joynal Abdin, Additional Secretary of DCCI Business Institute (DBI) is receiving a copy of Vol.4 of BDRAL Publication titled SMEs of Bangladesh on December 10, 2018 from BDRAL Research Team. The Bangladesh Rating Agency Ltd. Better Insight Better Business Mr. Mohammad Abdul Majid, SAVP & Head of International Division of Shahjalal Islami Bank Ltd. is receiving a copy of Vol.4 of BDRAL Publication titled SMEs of Bangladesh on December 20, 2018 from BDRAL Research Team.