Private sector credit growth hits 41-month high

Bangladesh’s private sector credit growth reached a 41-month high in May this year, owing to the escalating trend of import financing and increased economic activities following the pandemic shock.

Latest data from the Bangladesh Bank show that the country’s private sector credit growth accelerated to 12.94 per cent in May – the highest since January 2019, when it was 13.20 per cent.

Industry insiders say this upward trend will continue in the coming days, as the expansion of industries resumed after the second Covid wave.

The pandemic, which hit the country in March 2020, had killed the demand for credit. The private sector credit growth hovered around 8 per cent when the crisis reached its peak.

Credit growth stood at 7.55 per cent in May last year, but credit expansion is on the rise since that period, shows data from the central bank.

Mercantile Bank’s Additional Managing Director Mati Ul Hasan said, “Private sector credit is currently growing as the demand for credit increased following the second wave of Covid-19 pandemic, due to industrial expansion and the increasing trend of private consumption.

“This rising trend of import financing due to the global market price hikes is another reason for the rise in credit growth.”

The country’s import payments rose by 48.25 per cent to $67.86 billion from July to April of the current fiscal year, marking a sharp increase since the second wave of the Covid-19 pandemic.

Hasan pointed out that the banking sector is currently facing a liquidity crunch mainly due to the growing import financing.

However, Mutual Trust Bank’s managing director and CEO Syed Mahbubur Rahman said the disbursement of stimulus loans is another key factor behind the growing private sector credit.

“Most of the banks are implementing stimulus packages for the second phase, which will push the private sector credit growth further,” he added.

The credit growth of May was 1.86 percentage points lower than the Bangladesh Bank’s target for the current fiscal year. The regulator had fixed the credit growth target at 14.8 per cent for FY22.

Pubali Bank Managing Director Saiful Alam Khan Chowdhury said his bank is receiving a large volume of credit proposals from businesses after the economy began rebooting.

“The demand for loans has increased centering on the Eid-ul-Azha, one of the biggest festivals of the Muslim community,” he added.

A surge in import payments and rising trend of private sector credit growth helped reduce surplus funds from the banking industry. At the end of April, excess liquidity in banks stood at around Tk 1,90,000 crore, down from Tk 2,00,000 crore a month ago, as per the central bank.

The surplus fund in the banking industry hit an all-time high of Tk 2,31,711 crore at the end of June last year. The excess fund decreased by 11.68 per cent or Tk 27,076 crore in just eight months.

The central bank is likely going to issue a monetary policy statement on June 30 of this year for the upcoming fiscal year. The private sector credit growth target may remain unchanged for the upcoming fiscal year, senior Bangladesh Bank officials told The Business Post.