Private credit growth moves upward for 2nd consecutive month

Private sector credit flow marked a positive growth for two months in a row on the back of the resumption of economic activities following the vaccine rollout.

Lending to businesses recorded 8.38% growth in July – a slight increase from 8.35% in the previous month.

The credit growth, however, is yet to get pace as bankers have remained cautious in lending amid rising default loans and low recovery of stimulus loans.

The Bangladesh Bank in its monetary policy for the current 2021-2022 fiscal year has set the target of credit growth in the private sector at 14.8%.

The central bank's monetary policy statement says the economy will start to get back vibrancy soon once the pandemic is brought under control. As a result, the demand for credit in all sectors will increase in the coming months, it adds.

Asked about this, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the impact of the pandemic has just started to normalise, causing a slight surge in demand for loans.

He, however, said they would take a decision about raising credit disbursements after observing the situation for several months more.

"If the country faces a third wave of Covid infections, it could become uncertain in the months ahead. Now our focus is on implementing the second phase of several incentive packages."

He expressed optimism that private sector credit growth could reach a double-digit by the end of this year.

According to bankers, the recent upward trend in credit growth is chiefly attributable to a rise in the number of LC (letter of credit) openings.

Import expenditure registered a 21.63% growth in July, central bank data show.

High imports have also put pressure on the foreign exchange market, pushing the dollar price up.

Dollar price has started to go up after a break of more than two years.

The inter-bank exchange rate started to rise from August this year and crossed Tk85 on the 22nd of the month – the highest in recent years.

In the last one week, the price movement was fast and the LC rate increased by Tk0.40 to reach Tk85.25 on Sunday, according to banks.

The greenback became dearer at the same pace in the kerb market and was sold at nearly Tk88 on Sunday, up from Tk87.30 a week ago.

The rising demand for US dollars has prompted the Bangladesh Bank to backtrack from its dollar buying spree and instead to sell dollars to banks in order to keep the market stable.

The Bangladesh Bank bought a record $8 billion US dollars in the 2020-2021 fiscal year amid low imports and high inflow of remittance.

However, since August this year, the Bangladesh Bank has sold $305 million dollars to banks, according to the central bank's data.

Private sector remained sluggish throughout the last fiscal year due to stagnation in business expansion amid the pandemic crisis.

The private sector credit growth was 8.40% in the last fiscal year against the monetary target of 14.8%.

Growth in private sector credit saw a steady decline last fiscal year as the coronavirus pandemic caused economic activities across the country to come to a standstill.

Private credit growth was 9.20% in July last year, which fell to 7.55% in May this year due to a declining demand for loans amid the pandemic.