Private sector credit drops to 9.90% in April, lowest in 5 months

Infographics: TBS

Private sector credit growth declined by 0.59 basis points to 9.90% in April this year compared to the previous month, marking the lowest level in five months.

Bankers attribute this slowdown to a contractionary monetary policy and higher lending rates.

According to central bank data, private sector credit growth was 10.49% in March, the highest in nine months at that time.

However, despite surpassing the central bank's target of 10% for the first six months of the current fiscal year in March, it decreased in April.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told TBS that credit growth increased in March due to Eid. As two-thirds of April was post-Eid, credit growth slowed down this month.

"Due to the slow pace of the country's economy and the global market, businessmen are reducing new business expansion. Besides, the loan interest has increased to more than 14%. Consequently, businessmen consider the interest rate when taking loans," he said.

He added, "The rate of the floating dollar is increasing. Traders are making various calculations regarding imports due to the rise in the price of the dollar, which is contributing to the decrease in growth."

Emranul Huq, managing director of Dhaka Bank, said, "The monetary policy of the Bangladesh Bank has become contractionary for the last two times. Consequently, the growth of private sector credit is low, as interest rates on all types of loans have increased."

A treasury head at a government bank noted that imports have drastically declined over the last two years due to the imposition of import LC margin by the central bank. Currently, LCs are being opened at around $5 billion per month, whereas they were around $8 billion per month in FY22. This decline has significantly impacted the growth of private sector credit.

According to Bangladesh Bank data, in the first eight months (July-February) of the current financial year, LC openings and settlements have decreased by 4.23% and 13.93%, respectively, compared to the same period of the previous financial year.

LC settlements in the first eight months of FY23 stood at $51.48 billion, while they amounted to $44.31 billion in the first eight months of the current financial year.

Capital machinery LC settlements decreased by 25.36% to $1.85 billion in the first eight months of the current fiscal year. Additionally, the import settlement of industrial raw materials decreased by 25.06% to $1.43 billion.

According to central bank data, private credit growth was 12.62% in January 2023. Since then, it has consistently decreased until September. In October, it rose slightly to 10.09% but declined again in November. However, there was marginal growth in December compared to November.

In the ongoing monetary policy, the central bank has revised downward all money supply targets. Notably, the private sector credit growth target has been reduced to 10% for June, down from the previous 11%. Additionally, the broad money supply has been trimmed to 9.7% from the earlier target of 10%.

The central bank said it plans to maintain its tight monetary policy until inflation drops to 6% by June, but the most recent report from the Bangladesh Bureau of Statistics shows it is still at 9.74% as of April.

Treasury department officials of several banks said that the growth is slightly less than the demand for private sector loans in the market. The reason is that many banks are facing a liquidity crunch. Additionally, the country's import growth has been low for the last one and a half years.