Dhaka Chamber of Commerce and Industry (DCCI) President Md Sameer Sattar on Sunday said it is apparent that private sector credit growth has slowed down due to the current geo-economic uncertainty.
He believes that the target set for public sector credit may limit the scope for private sector borrowing, read a press release.
"To reduce public sector borrowing, efficiency and good governance must be ensured by adjustment in government spending through austerity measures, rationalisation of government expenses and prioritization of development projects," he added.
Sameer also underscored enhancing tax revenue to reduce the public sector borrowing from the banking sector, and acknowledged that a contractionary Monetary Policy Statements (MPS) will help to revive the financial and private sectors.
The MPS primarily aims to curb inflation by reducing the aggregate demand in the economy, continuing supply-side interventions and a stable and favourable business environment, he said in response to the declared monetary policy for the first half of FY24 by the Bangladesh Bank.
The repo and reverse repo have been adjusted to 6.5 per cent and 4.5 per cent respectively to control inflation by reducing the money supply.
However, the effectiveness of these instruments of controlling inflation is yet to be seen. Because the reverse repo was raised earlier but inflation did not decline as expected.
MPS showed that the lending rate cap of 9 per cent has been lifted. However, the lending rate will be determined based on a new policy termed as "Short-Term Moving Average Rate (SMART)."
As a result, the interest rate on bank loans may reach double-digit which may trigger manifold challenges for the survival of businesses in the current volatile geo-economic situation as well as provoking inflation.
Lifting the cap of lending rate and introducing the SMART policy may also increase the cost of doing business for CMSMEs.
The public sector credit growth has been set at 43 per cent for July-December of FY24, which was 40 per cent in January-June of FY23. On the other hand, the private sector credit growth has been set at 10.9 per cent for July-December of FY24, which was 11 per cent in January-June of FY23.
Regarding exchange rate stability, Sameer agrees that a unified exchange rate will stabilise the market. However, strong monitoring should be in place by the Bangladesh Bank so that it is properly maintained.
Reduction of ERQ encashment limit to 50 per cent and increase of interest of EDF to 4.5 per cent are necessary moves to mitigate the foreign exchange challenges.
To enhance remittance inflow in the country, the Bangladesh Bank needs to be very stringent to discourage the informal channel of inward remittance like Hundi.
Sameer was hoping for solid recommendations from the Bangladesh Bank to deal with non-performing loans (NPLs).
This is because maintaining low NPLs and ensuring good governance in banks and financial institutions are critical for maintaining financial sector stability.
"We hail the Bangladesh Bank and the Government of Bangladesh for the formation of a committee to review the existing Bank Company Act 1991 to propose effective resolution to the growing NPLs," he said.
Since growing NPLs is limiting the private sector credit and in turn, stalling private sector growth, Sameer feels that stern measures for quick loan recovery should be brought into place.
In connection, he said, the Bangladesh Bank can identify and pinpoint the exact reasons, focusing on habitual defaulters, and start engaging with various institutions and stakeholders in order to work towards reducing the current backlog in recovery cases along with quick reforms to introduce ADRs in an effective manner.
