Private sector credit growth hits 22-month low in August

Infographics: TBS

Private sector credit growth in Bangladesh slumped to 9.75% in August, the lowest in 22 months, as businesses and individuals reined in borrowing amid economic headwinds and uncertainty surrounding the upcoming national elections.

According to Bangladesh Bank data, the last time private sector credit growth dipped below this figure was in October 2021 registering a growth of 9.44%.

Loans to the private sector have been declining consistently since November 2022. The credit growth was 13.97% in November 2022, which came down to 9.82% in July this year, central bank data shows.

An official from the treasury department of a private bank, on condition of anonymity, told The Business Standard, that there are several reasons for the slowdown in private sector credit growth.

"First, the dollar crisis has reduced imports, as a result, the amount of credit has been low. Besides, businessmen are facing uncertainty regarding fresh investment considering the upcoming national elections. Many are thinking of investing after the election," he said.

Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and managing director of Giant Textiles Limited, told TBS, "Global recession is another reason for the negative growth in private sector credit. Due to the recession, inflation has soared in the country and abroad. And with that, banks' lending rate has increased, discouraging businesses from fresh borrowing."

He also mentioned the upcoming election as a reason for negative growth. "Businessmen are not going for big investments. Also, global demand for goods is still falling. Imports fell as orders for garment products dropped by nearly 20% due to which private credit flow did not increase," the BGMEA president said.

The central bank's monetary policy shows that no target has been set for private sector credit growth for the July-December period of the current fiscal year. However, the central bank has projected a growth of 10.9% in private credit but the growth in July-August was lower than the projected growth.

According to central bank data, private sector loans stood at Tk14.95 lakh at the end of August 2023, which was Tk13.62 lakh at the end of August 2022.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said, "Private loans are decreasing due to the decrease in the import of capital equipment and raw materials of industries. In addition, foreign private loans are also decreasing.

"As non-performing loans are increasing in banks, they are more cautious in disbursing loans which affected the growth."

According to central bank data, during the July-August period of the current financial year, letter of credit (LC) opening and settlement have decreased by 18.14% and 22.25%, respectively, compared to the same period of the previous financial year.

The biggest decrease was seen in the import of consumer goods. Some $926 million worth of goods were imported, which is 39.25% less than the same period of the previous fiscal year.

In addition, $381 million worth of capital machinery was imported in the said two months, which is 21.79% less than the period of the previous year. Import of industrial raw materials was $3.27 billion, which is 27.64% less than the same period of the previous year.

The treasury head of a state-owned bank told TBS that private credit is falling because banks are very cautious about lending. Moreover, many banks still have a liquidity crisis. Banks do not want their money to be drained out in any way. Hence, private sector credit growth will slow down for a few more months.