Bangladesh’s private sector credit growth dropped to 9.90 per cent in November 2023 from 13.97 per cent in the same month of the previous year.
The credit growth dropped 4.07 percentage points year-on-year. It was 10.09 per cent in October last year, according to sources in Bangladesh Bank.
Talking to The Business Post, Executive Director of Policy Research Institute Ahsan H Mansur said, “The private sector credit growth is down for two reasons. In particular, the deposit growth in banks gradually decreased, and as a result, banks are suffering liquidity crises. Another reason is government borrowing from the private banks, which has directly impacted the private sector in the country."
According to the central bank data, the government borrowed Tk 31,274 crore from scheduled banks during the July-November period of FY24. At the same time, it repaid Tk 27,635 crore of the loans it took from the central bank.
Economists say the upward trend in bank borrowing by the government is having a direct impact on the private sector credit growth, as evidenced by a significant decline in this indicator.
Bankers think that there are many reasons behind the fall in the private sector credit.
On the issue, Dhaka Bank Managing Director and CEO Emranul Haque said, “The economic crisis has been continuing for the last two years. Importers cannot import adequately due to the USD shortage. The demand for bank loans has decreased to importers for less investment.”
“When imports fall, the banks’ credit demand also drops automatically,” he added.
The private sector credit growth trend was comparatively good in the first six months of last year. During the period, the private sector credit growth was more than 11 per cent. However, the country started witnessing a downtrend in private-sector credit after June last year.
Arfan Ali, former managing director of Bank Asia said, “The private sector credit growth slowed down because of tight monetary policy. The central bank is trying to make money expensive, and reduce money flow due to ongoing high inflation.”
Banks are currently offering around an average of 4.55 per cent interest on deposits.
The Bangladesh Bureau of Statistics (BBS) data showed that the annual inflation rate was 9.49 per cent in November last year.
Former lead economist of World Bank’s Dhaka office Zahid Hussain said, “It’s clear that banks are suffering the liquidity crisis. For this situation, the central bank has been facilitating liquidity support continuously to scheduled banks since 2022.”
On condition of anonymity, a senior central bank official said that due to the dollar crisis, private sector traders are facing problems in importing raw materials and capital equipment.
“Raw materials and capital equipment are being imported much less than before. Most of the credit going to the private sector now is on consumer goods imports."
He also said that the consumer loan interest rate is increasing every month. Besides, the central bank has increased its policy rate several times in the current fiscal year.
“Banks are taking liquidity from the central bank at higher rates, besides increasing the interest rate at customer level is also reducing the amount of customer borrowing. So, the growth of this sector is slowing down."
