Private sector credit growth keeps slowing down amid liquidity crunch

Private sector credit growth kept slowing down for two consecutive months – September and October – amid a liquidity crunch in banks and a fall in the country's imports.

The year-on-year growth for the month of October was 13.91%, a slight decrease from 13.93% in September, according to the latest data from the central bank. September also saw a fall in the credit growth after an upward trend in the previous six straight months.

However, month-on-month data says the total outstanding credits to the private sector have been on a gradual rise since the beginning of the ongoing fiscal year. It was Tk13.52 lakh crore in July, Tk13.62 lakh crore in August, Tk13.79 lakh crore in September and Tk13.89 lakh crore in October.

Sector insiders said the Bangladesh Bank, like other central banks across the globe, tightened monetary policy and decreased the private sector credit growth for FY23 in a bid to tame inflation.

"Bank loans to the private sector increased rapidly with the reopening after the Covid-induced restrictions. The global price hikes also contributed to the spiked flow of the loans. The private sector credit growth, however, has now been slowed down as the lenders are now suffering a liquidity crisis," said Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank.

"The growth is still fine in consideration of the liquidity crisis," he added.

According to central bank data, private sector credit growth was 8.38% in July 2021. After a gradual rise, it reached 11.07% in January 2022. The growth slowed slightly to 10.87% in February this year, then continued to increase until August. It fell by 10 percentage points in September and 2 percentage points in October.

The Bangladesh Bank data also said the excess liquidity in banks was Tk2.03 lakh crore at the end of June this year but fell to Tk1.69 lakh crore in October.

"The growth in deposits amid the inflationary pressure was much slower than that of loans during the time, which resulted in a fall in liquidity," a central bank official, wishing to remain unnamed, told TBS.

Meanwhile, the amount of imports to the country has been decreasing continuously since April this year. LCs involving $9.80 billion were opened in the country in March this year, which decreased to $8.42 billion in April. Since then the volume of LCs has been decreasing steadily.

In September, LCs involving $6.51 billion were opened in the country. Then there was a sharp drop in October when LCs involving $4.72 billion were opened.