Despite the fall in import and export businesses, the private sector witnessed a 10.66 percent year-on-year credit growth in September this year, slightly down from 10.7 percent in the previous month.
The banking sector also remains comfortable with the liquidity position.
Private sector credit growth is yet far below the monetary target of 13.20 percent set for December this year, with total credit to the sector amounting to Tk1,070,000 crore in September, according to Bangladesh Bank data released on Sunday.
"There is no liquidity crisis in the banking system, but banks are shy about lending due to slow loan recovery amid a huge rescheduling spree," said Md Arfan Ali, managing director of Bank Asia.
Adding that the fall in import and export growth also accounted for slow credit growth, he said, "Though the opening of Letters of Credit for import is still good, falling exports have set alarm bells ringing in the banking sector.
"If exports continue to shrink, a liquidity crisis will be created in the banking system."
Import growth was a negative 2.30 percent in the July-August period, while the export sector registered a 1 percent negative growth during the same period, according to the central bank data.
In contrast, public sector credit growth saw a big jump to 44.4 percent in September from 37.3 percent in the previous month. The growth rate also exceeded the monetary celling of 25.20 percent set for December by the Bangladesh Bank.
Increased bank borrowing pushed domestic credit growth to 14.42 percent, very close to the monetary target of 14.50 percent set for December.
Government borrowing has increased significantly in recent months as sales of savings certificates dropped following the tax increase on savings tools in the current budget.
Sales of savings certificates dropped by 96 percent in the first two months of the current fiscal year, compared to the same period in the previous fiscal year.
In the budget for fiscal year 2019-20, the government increased tax at source on savings instruments up to 10 percent irrespective of the investment ceiling to make it consistent with the bank interest rate.
Providing a tax identification number (TIN) has also been made mandatory for everyone buying National Savings Certificates amounting to more than Tk1 lakh. Buyers also have to do all transactions regarding savings tools through banks.
In recent years, the sale of savings tools has increased rapidly. To discourage savers from buying savings tools, bankers and economists had long been urging the government to reduce interest on savings certificates.
"It is good for the government to borrow from the banking system instead of from saving instruments," said a senior executive of Bangladesh Bank on condition of anonymity.
"This is because borrowing from the banking system will cost 7 to 8 percent in interest, while in the case of saving instruments the cost is above 10 percent. Moreover, when the government's borrowing from savings certificates declines, more money will flow to the banks," the executive added.