Long-term loans from short-term deposits weaken banks, experts say
The Differences Between Long-Term Financing and Short-Term Financing
Short-term financing is typically closely linked to a business’s operational requirements. It offers shorter maturities (3-5 year) than long-term finance, which allows it to be more suitable for fluctuation in working capital as well as other operational expenses that are ongoing. Typically, short-term financing is offered by banks and comes with variable interest rates. Sometimes, businesses artificially “fix the floating rates using the use of a derivative for financing, like the swap. Find out a more convenient loan here: https://oakparkfinancial.com/same-day-loans-online/
Many businesses consider long-term funding as a kind of ‘patient’ finance because of its lengthier durations (5-25plus years). Long-term financing is perfect for companies looking to extend or spread out refinancing obligations that go beyond the standard tenors of banks. More extended maturities usually allow for delayed, restricted or no amortization. This could be appealing to businesses that have goals such as purchasing a shareholder outright and investing in capital projects, assets or acquisitions, which have an extended investment return time.
It is typical for long-term loans to include a fixed interest rate. A fixed-rate, long-term balance sheet could allow businesses to better manage risk in the event that interest rates increase. As mentioned previously the business will be able to repay the loan with certainty about the cost of financing over the course of the investment.
The majority of long-term lenders are institutions, such as large insurance companies that, with their capital resources, are able for lending on a longer-term, recurring basis.
Analysts believe that reliance on banks to provide long-term financing can be detrimental to the creditworthiness of lenders in local areas.
Furthermore, as a lot of the nation’s banks suffer from a massive amount of non-performing loan, entrepreneurs must look to the stock market for funds in case they require capital for the long term, they suggested.
The comments were made at the seminar, called “High-performing companies’ listing barriers and its removal” that was hosted through a news and business site, businesshour24.com, yesterday.
Prof. Shibli Rubayat-Ul-Islamwho is chairperson of the Bangladesh Securities and Exchange Commission (BSEC) He declared it dangerous for banks to offer large loans for long-term duration from their short-term savings.
In fact, the proportion of loans that are not performing is high enough that, if the provisioning system was not in place, many banks would have been forced to shut down.
“Doing business is fraught with risks, and when a company is unable to sustain losses and the business owner is unable to pay back his loans, every company suffers even the most profitable one,” he said in his speech. He addressed the gathering as the principal guest.
“So we’re working to help companies get trading on the stock market to cover their capital needs however, we are facing issues in this area and are trying to overcome these.”
The BSEC chairman continued to state that if a business planning to go public properly provides all the necessary documentation and documents, the initial public offering may be approved in seven to 30 days.
“People turn to banks for their capital requirements because banks’ loans are easy to obtain,” said Faruq Ahmad Siddiqi the ex-chairman of BSEC.
“So so long as banks have sufficient cash to finance longer-term plans, businesses won’t be attracted to the stock market. Additionally, the stock market is not a reflection of the dynamism of the economy since it fluctuates between booms and crashes without reason. economic”.
When compared to the development of Bangladesh’s economy over the last year, the market hasn’t kept up. Given the current situation just a handful of excellent companies have been listed in recent times.
“So investors also have trouble finding the right scrips to store their hard-earned cash” Siddiqi said.
Stock exchanges are in a position to provide long-term finance solutions however, just 0.07 percent of Bangladesh’s financial needs were fulfilled through the stock market in 2020, whereas the remainder came from banks, according to Mamunur Rashid, president of the Institute of Cost and Management. Bangladesh Accountants.
“Tax fraud must be stopped with all means to ensure that companies are publicly traded. Businesses are usually not willing to make public announcements because they are subject to the BSEC surveillance and other legal obligations after being listed,” he added. .
Sayedur Rahman, chairman of the Bangladesh Merchant Bankers Association, Akter Hossain Sannamatwho is an advisor to Businesshour24.com as well as Amirul Islam, publisher of the news website online Amirul Islam, publisher of the news portal, also were present.