Private sector credit growth dropped to 12.07 percent in April, 56-month lowest, amid rising liquidity crisis in the banking sector due to poor deposit growth. The growth rate in April was the lowest since August, 2014 when the growth rate was 11.39 percent. The growth was 12.42 per cent and 12.54 percent in March and February this year respectively.
The private sector credit increased to Tk 9,87,929.20 crore at the end of April this year from Tk 8,81,510.80 crore at the end of March this year.
Bankers analyzed that worsening liquidity crisis in the country’s banking sector ahead of the adjustment of advance-deposit ratio by banks with the BB set limit was the main reason for the falling private sector credit growth. Amid a hike in interest rates by banks for fetching deposits, the central bank in March, 2019 extended the ADR adjustment deadline by six months to September 30, 2019 from March 31, 2019
As per the BB instruction, commercial banks would have to cut advance (loan)-deposit ratio to 83.5 percent from 85 percent and Islamic banks have to maintain IDR (income-deposit ratio) at 89 percent instead of 90 percent. Bangladesh Bank data shows ADR of 22 banks are yet above the specified limit. Besides the 22 banks, a number of banks were maintaining their ADR or IDR close to the BB set limit, curbing their capacity to issue new credit to their clients.
Apart from the ADR adjustment related liquidity crisis, slow growth in deposits in the banking sector also worsened banks’ credit disbursement capacity. Savers’ much interest in the national savings certificates against which the government is offering around 12 percent interest was also hindering the banks’ deposit collection moves.
Latest BB data shows that deposit growth in the country’s banking sector was 10.86 percent and 10.52 percent in April this year respectively after posting 9.41 percent growth in December last year. Besides, government’s increased borrowing from the banking sector was another reason that curtailed banks’ capacity to lend to the private sector. As of May 15 this year, government borrowed Tk 7,998 crore from the banking sector. Due to liquidity crisis, banks borrowed Tk 13,475.8 crore from the central bank through repurchase agreement (REPO) in the period between July, 2018 and March 5, 2019 while the entities borrowed Tk 572.86 crore in the entire 2017-2018 fiscal year. In the fiscal year of 2016-2017, banks’ borrowing though REPO was Tk 115.67 crore.
Huge provisioning requirement against non-performing loans in the country’s banking system was another factor that has been weakening liquidity situation in the country’s banking sector.
The trend of continuous slow private sector credit growth will affect the country’s economic growth, experts concerns. They suggested that the slow private sector credit growth indicated stagnancy in the private sector investment. They urged the Bangladesh Bank to have a closer look for identifying the reason for slow credit disbursement and initiate the effective measure.