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Bangladesh’s private sector credit growth dropped to 9.69 per cent – a 23-month low – in September, compared to 9.75 per cent in August this year, according to the central bank data released Wednesday.
This credit growth was 9.44 per cent in October 2021, and the growth rate was above 10 per cent before July this year. The data indicates a steady decline in investments in the private sector, which is directly affecting industrial production and the country’s economy.
Private sector credit has been decreasing steadily since August last year. The figure stood at 14.07 per cent during that month.
Commenting on the issue, former lead economist of World Bank Dhaka Office Zahid Hussain said, “The demand has decreased since last year. Uncertainty has increased in the economy. Besides, the country has been facing a USD crisis since last year.
“As a result, some businessmen are not taking loans from banks. The exchange rate has gone up steadily as well, due to the USD shortage in the country.”
He continued, “Businessmen are not willing to expand their market for the lack of demand. If demand decreases, then supply decreases, then lending of banks decreases as well. The increased lending rate is another reason for the decrease in private sector credit.
“Businessmen have to pay more interest than before. The high inflation is another key reason.”
It should be noted that many are not importing capital machinery and other items due to the falling demand in the country. The businessmen are now trying to predict the upcoming challenges in the economy and the USD price trend.
Dhaka Chamber of Commerce and Industry (DCCI) President Sameer Sattar said, “There have not been enough imports due to the global economic headwinds. Additional pressure on the foreign exchange market has had some impact in this regard.
“This in turn may push up the prices of essential commodities as importers cannot bring in capital machinery due to a lack of investments. Sometimes importers have the chance to take loans from banks, but sometimes they hold out to purchase essentials.”
Credit growth fell also due to restrictions on imports of luxury items, and increased monitoring on imports imposed by the Bangladesh Bank, insiders say.
The central bank had reduced the private sector credit growth target for FY23 to 14.01 per cent from 14.8 per cent of FY22 in a bid to tackle the inflationary pressure. The target was 10.9 per cent in December 2023.
Mutual Trust Bank Managing Director Syed Mahbubur Rahman said, “The banks are facing a liquidity crisis, but the situation has not reached an extreme level. The businessmen are decreasing their loans from banks due to a lack of demand.
“So, we cannot say that the private sector credit decreased due to a lack of liquidity in the banking sector. But we should focus on taking money back from the defaulters.”
