Bangladesh’s banking sector is experiencing a sharp decline in lending due to low investment confidence, worsened by the formation of an interim government. Investment has stagnated since 2022 amid a dollar crisis, high inflation, and political uncertainty.
Banks are primarily providing working capital for existing businesses, with new investment proposals dropping significantly. Letter of Credit (LC) openings fell nearly 13% from July to August, indicating limited business growth. Due to liquidity issues, banks are favoring government bonds over private sector loans, causing private sector credit growth to decrease to 9.86% in August. High lending rates of around 15% are making borrowing unsustainable for many businesses. Additionally, the low implementation rate of the Annual Development Programme (ADP), below 3% in the first two months of the fiscal year, is further undermining investment confidence. Experts suggest that the government must build trust with business stakeholders and enhance ADP implementation to revitalize investment.
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