Private sector credit growth, which started to rebound in July backed by stimulus disbursement, tumbled again in October due to a lack of demand for fresh loans amid stagnant business expansion activities fearing the second wave of the novel coronavirus.
In October, private sector credit growth came down to 8.61% from 9.48% in the previous month, according to the latest data of the Bangladesh Bank.
The growth rate was far below the monetary target of 14.8% set by the central bank for the current fiscal year.
The total loan to the private sector stood at Tk11,14,322 crore at the end of October this year.
There are barely any disbursements of fresh credits due to a lack of demand, said Mashrur Arefin, managing director of City Bank.
He said loan disbursement under the stimulus package contributed to credit growth since July. By October a major portion of the package was disbursed, as a result of which credit growth in October slowed down again, he observed.
Industrialists are not taking out loans as they are observing the impact of the second wave of Covid-19 infections and the development of vaccines, he added.
Negative growth in capital machinery import is a reflection of low credit demand, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
He said individuals are also reluctant to take out loans as their purchasing power has declined amid job and salary cuts during the pandemic.
Local manufacturers are not interested in going for further production as their products have already piled up amid low consumption, he argued.
There is very little scope for a rebound in credit growth in the coming months, he assumed.
Of the stimulus package of Tk30,000 crore, around 80% has been disbursed thus far, while disbursement under the Tk20,000 crore package currently stands at 40%, according to the central bank data.
The sluggish credit growth led to piling up of excess liquidity in the banking sector, taking the figure to Tk1.60 lakh crore in August, according to the Bangladesh Bank.
The import of capital machinery that largely contributes to banks' credit growth registered negative 39% growth in the July-September quarter of the current year.
A fall in the overall import led by the negative growth in import of capital machinery caused the foreign exchange reserve to cross $41 billion again on 25 November, keeping the money market afloat.
Only the pharmaceuticals sector saw a boost in investment as the demand for hygienic products and new medicines increased amid the pandemic situation.
While the overall business activities were reeling under the unprecedented economic fallouts of the novel coronavirus pandemic, drugmakers saw an opportunity to expand their operations in it – resulting in over 150% year-on-year growth in the import of capital machinery in July this year.
The opening of fresh letters of credit (LC) against capital machinery for the pharmaceutical industry grew by over 200% year-on-year in July, reflecting the business expansion efforts of the local drug manufacturers.