Private sector credit growth hits fresh 6-year low in July

Commuters walk in front of the Bangladesh central bank building in Dhaka, Bangladesh, September 30, 2016. REUTERS/Mohammad Ponir Hossain

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.

As per the latest Bangladesh Bank data, the private sector credit growth slumped to 11.26 per cent year-on-year in July this year, much lower than the BB’s cautious projection for the fiscal year 2019-2020.

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 per cent, lowest since June, 2013 when it was 11.04 per cent.

It was 12.54 per cent and 12.16 per cent in April and May this year respectively.

An official of the central bank has said that the Bangladesh Bank’s stricter monitoring over the banks for ensuring quality of credit to containing defaulted loans could be the reason behind the slowdown.

Otherwise, banks could have disbursed higher amount of credit to the private sector, the official said.

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, they said.

Defaulted loans in the country’s banking sector has increased by Tk 18,513.17 crore during the first half of 2019, including the new addition of Tk 1,551.63 crore during the April-June period, to Tk 1,12,425.17 crore.

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 per cent 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 per cent.

Experts expressed their concern regarding the slow private sector credit growth as it might affect the country’s economic growth.

The Bangladesh Bank should have a closer look for understanding the reason for slow credit disbursement to the private sector, they said, adding that the central bank should take measures to get rid of the situation.