Bangladesh’s private credit growth higher than strong peers

Amid the ongoing global pandemic, Bangladesh’s private credit growth rate remains higher than many fast-growing South and East Asian emerging markets and developing economies.

In the fiscal year 2020-21, Bangladesh’s private credit growth stood at 8.4 per cent, while its South Asian peer India’s private credit growth was recorded at 6.1 per cent followed by Pakistan at 5.7 per cent and South-East Asian Indonesia at 1.1 per cent.

However, emerging Vietnam showed double-digit growth of 15.4 per cent followed by Sri Lanka which posted the growth at 10.5 per cent, Bangladesh Bank data showed.

The high rate is a result of the government’s stimulus packages offered to the business community to fight the Covid-19 pandemic impacts and the central bank’s monitoring to ensure disbursement of these packages, said analysts.

It also was pushed by the government’s mega projects, which includes private sector contribution to the projects, they added.

“When the global economies are in trouble, a comparative better performance in private credit growth is a good sign for Bangladesh,” Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD), told The Business Post.

BB’s expansionary monetary policy offered for the FY21 and its implementation played an important role, said Moazzem adding that the government stimulus packages offered for the business community to combat the Covid-19 acted as a catalyst to perform comparatively better as it kept fund flow easy.

These packages also helped business people to meet the demands of working capital while the inflow of remittances helped banks to maintain a healthy cash supply, he said.

In addition, mega-projects helped to increase demands for the fund as private sector people who worked with those projects spent money to supply different types of goods, said the economist.

“The slow and weak business environment around the world affected new investments weakening private credit flow. But the government financial support through stimulus packages

was a big push for Bangladesh’s business community,” Dhaka Chamber of Commerce and Industry (DCCI) president Rizwan Rahman told The Business Post.

Private credit growth in the current fiscal year will grow if the government ensures the implantation of packages and business people get funds from banks to meet the cash demands, said Rizwan.

The government has to play an active role to this end, while the central bank has to be very vigilant in ensuring funds for all, he added.

Meanwhile, the BB on Thursday set the private sector credit growth rate at 14.8 per cent and public credit growth rate at 32.6 per cent for the fiscal year 2021-22 following the current stance of expansionary fiscal policy of the government especially for combating the Covid-19 fallout.

The BB will continue its support for productivity and employment sensitive priority sectors while strengthening its monitoring to ensure the quality and purpose of the loans, the central bank said in its policy statement.

Private credit target kept unchanged given the fact that the pace of credit demand will pick up in the coming months as the economy would reopen soon as the pandemic containment measures are underway in terms of broad-based national vaccination, said the central bank.