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Private credit goes upward in May but not enough for target

by BIZDATA INSIGHTS
July 4, 2019
in Financial
0
Private credit goes upward in May but not enough for target

Private sector credit rose by Tk 108,515 crore to Tk 1,000,918 crore in May this year compared to the same month of last year. Private sector credit growth grew in May, 2019 after continuous sliding since October, 2018. In May, credit growth stood at 12.16 percent, up from 12.07 percent a month earlier. H0wever, it is still well below the central bank’s target for the second half of fiscal 2018-19.

The credit growth is still 4.34 percentage points less than the central bank’s target of 16.50 percent for the second half of the just concluded fiscal year.

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Usually, a large quantity of essential commodities is imported to the country to meet the additional demand of consumers during the month of Ramadan. The banks provided higher trade financing to settle import payment obligations in May, particularly for essentials.

The country’s actual import in terms of settlement of letters of credit (LCs) rose to US$4.65 billion in May 2019 from $4.57 billion a month before.

Hence, industry experts claim the increase as insignificant and there is no possibility to escalate the growth in the upcoming months given the ongoing liquidity crunch in the banking sector, according to economists and bankers.

In the last two fiscal years, private sector credit growth hovered between 16 percent and 18 percent, only to dip at the turn of fiscal 2018-19.

Banking experts analyzed that, the lending capability of the banking sector has been declined in the recent period because of the upward trend in default loans, which has ultimately reflected in the lower credit growth. Banks are now trying to continue their business by way of widening their trade-based financing. Lenders have taken on a cautious approach in disbursing fresh loans given the ongoing liquidity pressure and high volume of default loans.

Experts claimed that, the credit growth will not get a boost if the deposit growth does not get a momentum. The investment in the private sector has remained rather static in recent times. Experts analyzed that foreign direct investment can also play a vital role in unlocking the stalemate but the ease of doing business index is discouraging foreign businesses from coming to Bangladesh. Bangladesh ranked 176 out of 190, which is the lowest in South Asia, in the World Bank’s Ease of Doing Business ranking.

On the other hand, clients are still reluctant to keep their deposits with banks as the interest rate on the government savings tools is much higher than what the lenders offer for their deposit products.

There is chance of increasing the private sector credit growth rate within the next few months considering the ongoing liquidity pressure.

BIZDATA INSIGHTS
Author: BIZDATA INSIGHTS

Tags: Private sector credit growth
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