Private sector credit growth in Jan nine-month low at 12.62%

Private sector credit growth in January tumbled to the lowest in nine months, show data, as bankers attributed the decline to plummeting imports and a liquidity crisis in the banking channel.

According to Bangladesh Bank's latest data, private sector credit growth dipped to 12.62% in January – down from 12.89% in December last year but up from 12.48% in April 2022. 

Mirza Elias Uddin Ahmed, managing director of Jamuna Bank, said the liquidity crunch in the banking channel due to depreciation of taka and dollar dearth have affected the credit flow to the local private sector.

According to the central bank, the opening of letters of credit (LCs) for imports has plummeted by around 25% in the first seven months of FY23.

LC opening in July-January was $39.46 billion, down 24.79% or $13 billion from the same period of FY22, according to Bangladesh Bank data.

During this period, imports of capital machinery, consumer goods, intermediate goods and industrial raw materials except petroleum fell substantially. LC opening for capital machinery was $1.41 billion in the first seven months of the current fiscal year, down from $4.25 billion during the corresponding period last year.

Mirza Elias told The Business Standard that private sector credit growth usually starts slowly at the beginning of a year but it picks up eventually.

In August 2022, private sector credit grew to 14.07% – close to the monetary target of 14.1% set for the current fiscal year. It then dropped to 13.93% in September and 13.91% in October last year, according to the Bangladesh Bank.

In addition to falling imports, two private bank managing directors noted some other reasons, including reported lending anomalies by some Shariah-based banks which grabbed the headlines, driving down the credit flow eventually.

Following the media reports, the top bankers said that the Shariah banks are now struggling with their statutory liquidity ratio (SLR) and cash reserve ratio (CRR) with the central bank instead of emphasising private lending.

Grappled with a liquidity crisis, they said the banks are taking deposits at up to 8% while lending at 9% – which is squeezing their profit margin. Besides, low loan recovery is encouraging the banks to invest in several comparatively safer T-bills.

The excess liquidity in the banking sector dropped by Tk8,128 crore to Tk137,600 crore in January compared to the previous month.

According to data from the Bangladesh Bank, the amount of excess liquidity in banks was Tk203,435 crore in June last year.