Private sector credit growth remains below 8% for sixth straight month

Despite some minor fluctuations, private sector credit growth in Bangladesh has maintained a downward trend since the fall of the Awami League government in the wake of the July Uprising.

According to the latest data published by Bangladesh Bank, credit growth in April stood at 7.5 percent, marking six straight months in which private sector borrowing has remained below 8 percent.

In March, credit growth was 7.57 percent, which had broken an eight-month streak of decline following the political upheaval in July-August last year.

In February, the growth rate was 6.82 percent and it stood at 7.15 percent in January.

Anwar-Ul-Alam Chowdhury Parvez, president of the Bangladesh Chamber of Industries (BCI), noted that the decline in private sector lending was due to several factors, including inadequate gas supply to factories, high inflation and political instability.

Speaking to bdnews24.com, he said: “As the overall economic situation has yet to improve, businesspeople are less interested in making new investments. They are in a wait-and-see mode.”

He also added that high bank interest rates are making it difficult to maintain business operations.

Bankers echoed similar views, stressing that private sector entrepreneurs are refraining from undertaking new investments or expanding existing businesses, resulting in a slowdown in large-scale bank loan disbursements. Consequently, capital machinery imports for factory setups have also declined.

According to data from Bangladesh Bank, letters of credit (LCs) for importing capital machinery totaled $1.42 billion during the first 10 months (July–April) of the current fiscal year.

In the same period of the previous year, the figure was $1.96 billion, showing a decrease of 27.46 percent.

Both business leaders and bankers agree that high interest rates are one of the main reasons for fading private sector credit flow.

At present, banks are offering loans at rates between 14 and 16 percent. The central bank has been raising interest rates as part of a contractionary monetary policy to curb inflation, which has remained above 9 percent for more than two and a half years.

In line with this policy, Bangladesh Bank reduced the private sector credit growth target from 10 percent to 9.80 percent in the monetary policy announced for the first half of the current fiscal year. However, actual credit growth has already fallen below this target.

In February, during the announcement of the monetary policy, Bangladesh Bank Governor Ahsan H Mansur said that the policy interest rate would remain at 10 percent until inflation declined. Accordingly, once inflation was under control, the rate would be lowered.

The central bank data shows that private sector credit growth began to decline after political unrest erupted in July last year, triggered by the movement for quota reform in government jobs.

The Awami League government was toppled on Aug 5 last year, and from that month onwards, credit growth in the private sector began to fall.

In July, the month the protests began, credit growth was at 10.13 percent. By August, it had dropped to 9.86 percent.

This downward trend has continued ever since. In September, growth fell to 9.20 percent -- the lowest in three years.

The rate dropped further to 8.30 percent in October, then to 7.66 percent in November and finally to 7.28 percent in December last year.

Bangladesh Bank’s website has been providing private sector credit growth data starting from January 2015.

According to that, the last time growth fell to such a low level was in May 2021, during the COVID-19 pandemic, when it stood at 7.55 percent.