Pvt credit growth nears fiscal target amid inflationary pressure

The private sector credit growth is nearing the fiscal target as much of the growth was driven by higher working capital requirements owing to elevated inflation.

In August, credit grew at 14.07 percent—only 3 percentage points away from 14.10 per cent set by the Bangladesh Bank for the current fiscal year.

Demand for working capital loans accelerated by soaring inflationary pressures and higher import financing helped increase the private sector credit growth, according to bankers.

“The demand for working capital requirements is very high as the growing inflationary pressures pushed up the raw material and transport costs,” said Pubali Bank Additional Managing Director Mohammad Ali.

Pubali Bank’s private sector credit growth stood at 17 percent in August, according to him.

The overall inflation hit 7.48 per cent in July from a nine-year peak of 7.56 per cent in the previous month.

Ali said the main cause of the higher credit growth is the foreign exchange market’s volatility.

“Importers are now spending Tk 107 to Tk 108 per US dollar to pay import bills. Previously, the interbank dollar exchange rate was Tk 95,” he said.

Echoing him, Dhaka Bank Managing Director Emranul Huq said that the credit growth picked up due to the price rise of raw materials, other commodities and growing import financing.

“Banks are financing more for import payments because the import cost has increased due to the rise in oil and other commodity prices in the international market,” he said.

Dhaka Bank’s private sector credit growth stood at 12 per cent, he said.

Mutual Trust Bank Managing Director Syed Mahbubur Rahman also said that the growing import payment pushed the credit growth up.

He said banks are now clearing the payments of the number of letters of credit deferred amid the coronavirus pandemic.

The import payment is still high despite the government recently taking several measures to control imports.

The letter of credit settlements, also known as actual import payments, rose by 63.06 per cent to $7.66 billion in July, the first month of the current fiscal year.

“It would take time to see the outcome of the central bank’s initiative to rein in imports,” said the Dhaka Bank MD.

The private sector credit growth in August was the highest in 46 months as the private credit growth was 14.72 percent in October of 2018, the Bangladesh Bank data shows.

The outstanding loans of the private sector stood at Tk 13,62477.7 crore at the end of August, as per the central bank latest data.