Private sector credit crosses BB target in March

Private sector credit growth surged to 10.49% in March, marking its highest level in the last nine months and exceeding the central bank's target for the month.

The growth also marks a 0.53 basis point increase from February's 9.96%, according to Bangladesh Bank data.

The central bank aimed for a 10% credit growth for the January-June period of the current fiscal 2023-24. While the first two months failed to meet the target, credit growth exceeded it in March.

Bankers said the growth was driven by an increase in imports and business transactions on the occasion of Ramadan and Eid-ul-Fitr.

Emranul Huq, managing director of Dhaka Bank, told TBS that contractionary monetary policies led to increased interest rates on loans, resulting in lower growth in private sector credit in the previous two months.

He said March saw higher imports of food products due to Ramadan, along with increased consumer loans for Ramadan and Eid expenses, contributing to the rise in private sector lending in March.

However, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said although the growth of loans increased in March, it decreased slightly the next month. 

"It is because now due to slow pace in the country's economy and global market, businessmen are reducing new business expansion," he added.

He further said credit growth also suffered due to rising interests on borrowing. Loan interest increased from 9% last July to 14% in April.

Besides, traders are reducing imports as the settlement rate has increased compared to the announced dollar rate due to which borrowing is low.

The opening of import LCs in March 2023 amounted to less than $6 billion. Over the past year, there have been only three instances where import LCs exceeded $6 billion.

A senior official from a private bank told TBS that while the dollar crisis persists, the situation has improved recently.

"In recent months, with exports exceeding $5 billion monthly and robust remittance inflows, dollar liquidity has improved in the banking sector. Consequently, banks are now considering opening Import Letters of Credit (LCs) for previously overlooked products," said the banker.

According to central bank data, private credit growth was 12.62% in January 2023. Since then, it consistently decreased until September. 

In October, it rose slightly to 10.09% but declined again in November. However, there was a marginal growth in December compared to November. 

In ongoing monetary policy the central bank has revised downward all money supply targets. Notably, the private sector credit growth target has been reduced to 10% for June, down from the previous 11%. Also, the broad money supply has been trimmed to 9.7% from the earlier target of 10%.

The central bank said it plans to maintain its tight monetary policy until inflation drops to 6% by June, but the most recent report of the Bangladesh Bureau of Statistics shows it is still at 9.81% as of February.

Officials from some bank treasury departments said the growth in private sector loans does not quite match the demand in the market. This is mainly due to many banks facing a liquidity crisis.