Private credit sees marginal growth in October
Bankers say the net growth in credit to the private sector was less than 10% over the last year. If the country’s economic activity had been normal, this debt growth would have been more than 15%, they say
Loan disbursements to the private sector increased by Tk16,266 crore or 1.08% month-on-month in October.
That is also a growth of 10.09% compared to the same month of the previous year. Bankers feel that credit growth is increasing as import-based payments rise.
According to Bangladesh Bank data, at the end of October, the private sector's accumulated credit stood at Tk15.29 lakh crore.
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Compared to June of the current fiscal year 2023-24, outstanding loans of the private sector decreased by Tk8,809 crore in July. But it registered an increase in the next three months, with Tk9,811 crore growth in August and Tk17,797 crore rise in September.
Bankers say the net growth in credit to the private sector was less than 10% over the last year. If the country's economic activity had been normal, this debt growth would have been more than 15%, they say.
An official of the central bank said that private businesses now import less capital goods and machinery. Most of the loans now going to the private sector are to meet consumer goods' import costs, he said.
He said that the interest rate of consumer loans is increasing every month as the central bank raised its policy rate (lending tools to banks) several times in the current financial year.
As banks are taking liquidity from the central bank at higher rates, they increase the interest rate at the customer level, leading to a decrease in the amount of loans taken by the customers.
The lending rate on consumer loans this December will be 11.47% whereas it was 10% in June.
The central bank has recently said that it will continue to use contractionary measures to reduce the money supply growth to control surging inflation. The central bank wants to reduce inflation to 8% by December. According to the last published official data, the country's inflation rate in October was 9.93%.
Private credit growth fell for 10 consecutive months from November 2022 to September 2023, the central bank's data showed. However, it increased by 0.40 basis points in October compared to the previous month.
In October, loans to the private sector grew 10.09%, compared to 13.97% in October 2022.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Business Standard, "Private loans are decreasing due to decrease in import of industrial capital machinery and raw materials. Apart from this, foreign private debt is decreasing."
As non-performing loans are increasing in banks, they are becoming more cautious in disbursing loans which has affected growth, he said.
A senior official of City Bank said, "Businessmen are not making new investments before elections. Our private sector term loans are very low. Many businessmen have to convert working capital loans into term loans."
The loans we are now going to the private sector are not for new industrial plants, he said, adding that most of these are for importing essential food products.
LC openings and settlements in the four months of the current financial year (July-October) decreased by 11.52% and -24.07% respectively compared to the same period of the previous financial year.
