When businesses hit hard by the pandemic need money the most to recover from shocks, lenders have remained cautious in providing loans, causing a sluggish growth of credits in the private sector.
The overall private sector credit growth in the last fiscal year was 8.62%, far from the monetary target of 14.8%.
That reflects banks' reluctance to lend money when they should play an active role in financing businesses. Not only did they provide few fresh loans, they also showed reluctance to disburse stimulus loans.
The Bangladesh Bank in a letter sent to banks on Sunday addressed the matter of delayed disbursement of low-cost funds. It asked banks to take necessary measures to fast-track the release of the money.
The BB expressed concern over the slow credit growth as it means a slump in investment.
When the overall import started to rebound at a pace of 17.31% in July-May period of the last fiscal year, capital machinery imports remained negative at 3.28%, according to Bangladesh Bank.
The increase in import expenditure is mainly due to the price hike of consumer goods in the global market.
As per the new monetary policy set to be announced this week for the current fiscal year, the central bank will take measures to speed up credit growth, said a senior executive of the Bangladesh Bank.
A senior researcher working for the central bank, however, said 8% credit growth could help achieve the targeted GDP growth if quality credit was ensured.
The BB is likely to keep the credit growth ceiling unchanged at 14.8%.
Md Arfan Ali, managing director of Bank Asia, acknowledged that banks needed to finance more during the ongoing crisis, but said negative cash flow held them back from doing so.
Cash flow became negative when there was no recovery of loans because of a moratorium. That made banks extra careful about asset quality as there is a risk of a wave of default loans after lifting payment pause, Arfan said.
This is the backdrop to banks shying away from fresh lending despite having excess liquidity, he added.
Currently, excess liquidity in the banking sector amounts to Tk2 lakh crore, according to the Bangladesh Bank data.
The Dhaka Stock Exchange data shows that out of 31 listed banks, 17 banks faced negative cash flow in the January-March quarter of the current year. Cash flow reflects the loan recovery of banks.
Borrowers have been enjoying payment pause for almost two years from January last year, which will expire in August this year.
Loan moratorium is the main factor behind banks' reluctance to lend money, Arfan said.
Some sectors, such as pharmaceuticals, agriculture, food, spinning millers, are performing well in the pandemic, he said, suggesting that loan moratorium facility should have been given based on sectoral performance.
The slow credit growth is not only happening in Bangladesh, neighbouring country India is also facing a similar situation.
Private sector credit in India has been growing at a subdued 5.5%-6% in recent months, which is half the pace seen before the pandemic, according to the Reserve Bank of India.