Private sector credit growth, primary indicator of private sector investments, remained sluggish in July. The high volume of non-performing loans (NPL) has the banks under liquidity pressure. Conversely, public sector credit experienced big growth.
The private sector credit registered 11.26 percent year-on-year growth in July, preceded by 11.29 percent growth in June, both being far below the target (14.8 percent) that has been set for June of next year.
The growth rate in July, this year, was the lowest since June 2013 (11.04 percent).
Total credit to the private sector stood at Tk 10,00000 lakh crore in July, according to Bangladesh Bank (BB) data, released on Thursday.
"Some private banks are operating under liquidity pressure. So, they are being cautious about lending. However, at the end of the year, the situation will improve", said Md Arfan Ali, managing director and president of Bank Asia.
"The slow credit flow to private businesses is a roadblock towards employment generation", said Faruq Mainuddin Ahmed, managing director and CEO of Trust Bank.
Though private sector credit growth remained low, the government's bank borrowing jumped to 32.33 percent in July from a scanty 3.87 percent a year ago.
The banks have shrunk from disbursing loans to the private sector, as they have been failing in recovering NPLs, the BB officials said.
While asked about the government's bank borrowing, officials at the finance ministry said, from now on the project directors will get funds directly from the ministry.
Finance ministry started spending on development projects in July this year. It had to provide funds in different sectors for projects that have not been generating expected revenue. So, the government turned to bank borrowing.
The NPLs in the banking sector soared to Tk 1.12 lakh crore by the end of June 2019, showing an increase of more than Tk 18,514 crore in six months.