Private credit growth hits 43-month high

Private sector credit growth reached a 43-month high to 13.66 per cent in June this year, due to the escalating trend of import financing and increased economic activities centering Eid-ul-Azha.

In June, private sector credit growth accelerated to 13.66 per cent, the highest since November 2018, when it was 14.01 per cent, reveals the latest data from the Bangladesh Bank.

The growing trend will continue in the coming days as industry expansion has resumed following the second wave of Covid-19, say industry insiders.

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

The credit growth stood at 7.55 per cent in May last year and this trend has been going up since then, shows data from the Bangladesh Bank.

Private sector credit growth is growing mainly due to the upward trend of post-import financing, said Dhaka Bank’s Managing Director Emranul Huq, adding that the import financing is growing due to the increased import payments.

The letter of credit settlements – also known as actual import payment – rose by 46.15 per cent to $83.68 billion in FY22 when compared year-on-year.

Import payment will come down in the upcoming days as the central bank imposed 100 per cent margin on imports of non-essential and luxury goods, Emranul told The Business post.

He also pointed out that the increasing economic activities before Eid-ul-Azha was another factor behind the growing private sector credit growth.

The credit growth of June this year surpassed the central bank projection of 13.10 per cent in its Monetary Policy statement for FY23.

The BB also fixed the credit growth target at 14.1 percent in the ongoing FY, which is seven percentage points lower compared to the target for FY22.

“The private sector credit is growing now as the demand for credit has increased after the second wave of Covid-19 pandemic due to the industrial expansion and increasing trend of consumption of people,” said Mati Ul Hasan, additional managing director of Mercantile Bank.

He said the rising trend of import financing due to the price rise in the global market is another reason for the upward trend in credit growth, adding that the banking sector is now facing a liquidity crunch mainly due to the growing import financing.

Meanwhile, Managing Director and CEO of Mutual Trust Bank Syed Mahbubur Rahman stated that the disbursement of stimulus loans was another reason behind the growing private sector credit.

“Most of the banks were implementing the stimulus packages for the second phase, which pushed the private sector credit growth,” he added.

The surge of import payments and rising trend of private sector credit growth helped to reduce the surplus fund from the banking industry. At the end of May of this year, excess liquidity in banks stood at around Tk 1,89,000 crore, as per the latest data from the Bangladesh 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 total outstanding credit in the private sector stood at Tk 1,351,235 crore at the end of June this year.