Private credit growth hits 43-month high

The private sector credit growth reached 13.95 per cent in July, which was the highest in 43 months and surpassed the target set for the first half of FY23 by the Bangladesh Bank.

This happened despite the central bank taking measures to control imports amid the forex crisis.

The central bank projected in its FY23 monetary policy statement private credit would grow to 13.6 per cent at the end of December this year.

In the monetary policy statement, the growth target was set at 14.1 per cent for the current fiscal year.

The private credit growth was 14.01 per cent in November 2018, the Bangladesh Bank data shows.

Industry insiders said private credit continued to rise in the last several months due mainly to costly import financing.

Import financing increased as import payments grew due to the price rise in the international market as a consequence of the Russia-Ukraine war, they added.

Mutual Trust Bank Managing Director Syed Mahbubur Rahman said it would take time to see the outcome of the central bank’s initiative to rein in imports.

He said a huge number of letters of credit payments had been deferred amid the coronavirus pandemic and banks were clearing those now. “This pushed up the private credit growth.”

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

The government recently took several measures to control imports as the growing import payments put pressure on the country’s forex reserves.

The central bank in May this year toughened the luxury item import rules, and the government also hiked taxes on 300 non-essential and luxury products.

Md Habibur Rahman, chief economist of the Bangladesh Bank, said the central bank was observing the situation as July’s credit growth surpassed the projection for the month of December.

The private credit growth hovered at around 8 per cent when the pandemic hit the economy. It stood at 7.55 per cent in May last year and has been going up since then, the Bangladesh Bank data shows.

The private sector’s outstanding loans reached Tk 13,52,566 crore at the end of June this year.