The downward trend in private sector credit growth continued in the seventh month of the current fiscal year even though the Covid-19 pandemic has subsided.
The growth rate was 8.32% in January, down from 8.37% in December.
The projected growth for the current financial year is 14.8%.
This is happening as confidence in private sector investment is not returning. Entrepreneurs have been slow in making investment decisions as they are observing domestic and global economic trends.
Former president of Dhaka Chamber of Commerce and Industry Abul Kasem Khan told The Business Standard the existing falling trend in private sector credit growth intensified after the pandemic.
"Investors would make quick decisions on new investments before the pandemic, but now they are treading carefully. This has affected credit growth," he explained.
Abul Kasem believes confidence in investment will return within this year as vaccination has begun and demand is growing.
"But if the situation in the export destinations does not improve, it will have negative impacts on export earnings. Moreover, if exports do not rebound, it will affect investment," added Kasem.
The impacts of the fall in private sector credit growth have also emerged in imports. In the first six months of the current financial year, import expenditures decreased by 6.8%.
Also, letter of credit (LC) openings for importing capital equipment fell by 11.34% compared to the July-December period of the previous financial year. LC settlement decreased by 37.58% during this period.
Entrepreneurs are not only disinterested in new investments but do not want to dispose of the LCs opened earlier either. But imports of consumer goods and industrial raw materials have risen a little due to increased demand in the domestic market.
The demand for loans in the private sector is not increasing. On the other hand, the tendency to take out bank loans is low as government expenditures have fallen.
This is causing excess liquidity in banks to increase. At the end of December last year, such liquidity exceeded Tk2 lakh crore.
Banks are bearing additional costs in managing excess liquidity.
On the other hand, as private sector credit growth has not increased, bankers are worried that interest earnings from loans and advance payments may decrease.