Private sector credit grew by 11.26% to Tk 10,02,966 crore in July this year compared to the same month of last year. The credit growth falls behind Bangladesh Bank’s credit growth target of 14.80% set for the current 2019-20 fiscal year.
The descending trend in private sector credit growth has remained unchanged with the growth rate hitting fresh six-year low in July this year amid heavy borrowing from the banking sector by the government, reflecting stagnant private investment state.
Taking into consideration about the 6 year low credit growth in June this year, 11.29 per cent, the central bank reduced the private sector growth projection to 14.8 per cent for the FY20 after failure to achieving 16.5 per cent growth target in the FY19.
In June this year, the private sector credit growth was 11.29 percent, lowest since June, 2013 when it was 11.04 percent. In May this year, the private sector credit growth was 12.16% in May, 12.07% in April, 12.42% in March, 12.54% in February and 13.20% in January this year.
There was a huge demand for credit in the private sector but private credit growth was not satisfactory owing to uncertainty in the banking sector, said economic analysts. They also analyzed that, banks are under pressure to reduce interest rate to single digit while the lenders were unwilling to take the risk of disbursing loans at low interest. Hence, banks followed a cautious approach in disbursing loans.
Besides the tight monitoring, growing volume of defaulted loans and slower rate of recovery was also holding banks from ensuring adequate credit to the private sector.
According to BB data, the total outstanding loan in the private sector rose to Tk 10,02,966 crore in July this year from Tk 9,01,465 crore last year. In the last one year, private sector credit rose by Tk 1,01,500 crore.
Non-performing loans continue to rise in the country’s banking sector and because of this, Bangladesh Bank is keeping an eye on the banks to ensure quality of credit, which could be the reason behind the slowdown.
Non-performing loans (NPLs) of banks rose by a staggering Tk 1,551 crore in three months till June this year, taking the amount of stress loan in the banking sector to Tk 112,425 crore.
As of June, the total bad loans accounted for 11.69% of the total disbursed loans, according to the latest Bangladesh Bank (BB) latest data.
Industry insiders say that, most of the banks are now under pressure to adjust the loan-deposit ratio as per the central bank’s instruction. Banks are now disbursing fresh loans in a cautious manner to maintain the ratio, which ultimately slowed the credit growth.
Apart from these, high sales of national savings certificates also slowed down the deposit growth in the banking sector, another reason to lessening banks’ capacity to lend.
On the other hand, the government’s borrowing from the banking sector increased by 32.33 percent year-on-year in July was another hindrance for the banks providing private sector with adequate liquidity.
In the monetary policy for FY20, the BB projected to keep the government’s borrowing from the banking sector within 24.3 percent.
Experts expressed their concern regarding the slow private sector credit growth as it might affect the country’s economic growth.
