Low-cost stimulus loans diverting to unproductive sectors may cause failure in achieving the objectives, for which they have been disbursed in the first place, said Bangladesh Bank.
In a letter sent to banks on Sunday, the central bank asked bank authorities to strengthen internal monitoring to ensure that stimulus loans are used in the targeted sectors.
The BB in a primary observation found investment of low-cost loans in stocks.
It found that after stimulus loans had been given as working capital, the money was withdrawn at once in some cases, not gradually, indicating diversion of the funds, said a senior executive of the central bank.
Earlier, excess money flow from the banking sector led to a booming of the stock market only to make it crash in 2010.
According to the guidelines on Credit Risk Management, borrowers will have to use the money taken out in loans for which they have been provided. The central bank has alerted banks to possible fund diversions.
In the letter, the BB said that in some cases, stimulus loans were used for adjusting existing loans, not the purpose mentioned to get the low-cost fund under Covid recovery packages.
The banks were asked to form special cells under the direct supervision of the managing director to oversee the handling of stimulus loans.
The BB said economic recovery mostly depended on proper implementation of financial incentive packages announced by the government and the central bank.
It also said some banks had allegedly been delaying the disbursement of stimulus loans. The BB asked them to expedite the process.
The central bank will start deducting 4.5% interest at which the government provided stimulus loans through banks. The interest rate of stimulus loans is 9%. Half of the interest is borne by borrowers while the other half by the government.
The government announced stimulus packages of Tk1.28 lakh crore in total, of which the BB has been directly involved in disbursing Tk1 lakh crore.
The BB has so far provided Tk6,082 crore in interest subsidy to banks against stimulus loans of around Tk83,000 crore.
In the last year, the private sector credit growth was 8%, which slid down to 7.55% in May, the lowest in recent history.
The trend of credit growth shows that there has been little fresh lending. Stimulus loans have mostly contributed to the credit growth.
Though there was no significant business expansion even after the release of stimulus loans, the DSE recorded the best performance among the Asian frontier markets in May, according to Asia Frontier Capital.
The Dhaka Stock Exchange Board Index gained more than 9.3% in May, while the key indices in the markets of Pakistan, Vietnam, China, the Philippines, Kazakhstan, Sri Lanka, Thailand, and Indonesia lagged behind it with lower gains.