Private credit growth stands at 13.91%

The private sector credit growth rate, which has been dropping since August, stood at 13.91 per cent in October as banks’ lending slowed down amid tight liquidity triggered by a volatile foreign exchange market.

In September, the growth rate was 13.93 per cent, according to the latest Bangladesh Bank (BB) data.

The rate in August was the highest — 14.07 per cent — in recent times. However, October’s figure is still higher than the target for December.

The central bank in its monetary policy statement for FY2022-23 had set the private sector credit growth target at 13.60 per cent till December and 14.10 per cent till next June of this fiscal year.

Most of the banks are now under pressure due to the liquidity crunch created by the US dollar shortage, said Mati Ul Hasan, additional managing director of Mercantile Bank.

He said the forex market volatility is one of the reasons behind the tight liquidity situation in the banking sector. The falling trend of surplus liquidity also reflected that the sector is facing a liquidity shortage.

Surplus liquidity stood at Tk 1,69,586 crore at the end of October, down from Tk 1,89,000 crore in July, according to BB. A lion’s share of the surplus liquidity has been invested in government treasury bonds.

The surplus liquidity in the sector is falling due to BB’s USD selling spree. The regulator sold around $6 billion between July and November to banks and withdrew the equivalent amount of taka from the sector.

Mati said that import financing by banks has slowed down, as import payments have decreased due to the austerity measures taken by BB.

The latest BB data also show that LC settlements stood at $27.94 billion between July and October of FY23, up from $20.20 billion during the same period in the last fiscal year. That means LC settlements grew by 65.96 per cent year-on-year in October.

Talking to The Business Post, a senior official of a reputed private commercial bank said that the low-interest rate spread was another reason behind the slow private sector credit growth.

In October, the interest rate spread fell to around 3.02 per cent from 3.03 per cent a month ago, according to BB, due to the growing deposit rate amid skyrocketing inflation.

Bangladesh’s overall inflation was 7.56 per cent in June, 7.48 per cent in July, 9.5 per cent in August, and 9.1 per cent in September this year.

The overall inflation rates recorded in August and September are both 11-year high figures. However, the rate fell to 8.91 per cent in October.

Most of the banks raised their deposit rates based on the inflation rate. The central bank in August had asked banks not to set interest rates on fixed-term deposits below the inflation rate.

Commenting on the issue, Dhaka Bank Managing Director Emranul Huq said the growth in October was not so bad, and the credit growth has gone up in recent months compared to the pandemic period.

The total outstanding credit in the private sector was at Tk 13,89,148 crore at the end of October.