The private-sector credit growth fell significantly in November 2024 mainly due to a lower demand for loans, particularly for trade financing, amid ongoing uncertainties along with higher interest rates on lending, bankers say.
The growth in credit flow to the private sector came down to 7.66 per cent in November 2024 year-on-year from 8.30 per cent a month ago, according to the central bank’s latest statistics released on Thursday.
It was 2.14 percentage points lower than the Bangladesh Bank’s target of 9.80 per cent for the first half of the fiscal year 2024-25.
“Ongoing uncertainties along with higher interest rates have pushed down the demand for fresh credit, particularly for term loans, in recent months,” a senior executive of a leading private commercial bank told The Financial Express.
Currently, banks offer various loans to their customers charging between 14 per cent and 15 per cent interest rates, according to the banker.
He also said imports are still lower as the demand for term loans and trade finance decreased significantly in recent months.
The opening of fresh letters of credit (LCs), generally known as import orders, increased by 0.05 per cent to $28.12 billion during the July-November period of FY25 from $28.11 billion in the same period of FY24.
On the other hand, actual imports in terms of LC settlements dropped by 0.83 per cent to $27.94 billion during the period under review from $28.17 billion in the same period of the previous fiscal year, according to the central bank’s data.
“Actually, the business community has maintained a wait-and-see policy to make fresh investments in order to avert any financial risk,” the private banker noted.
He also said political stability along with an uninterrupted supply of utility should be ensured to improve Bangladesh’s investment climate.
Talking to The Financial Express, a senior executive of another private commercial bank said most banks are now maintaining a conservative approach for sanctioning fresh loans to avert new classification in their loan portfolios in this sluggish economic regime.
As part of the approach, banks are now trying to ensure adequate collateral before sanctioning any loan, the senior banker explained.
“Lower activities by some conglomerates linked to the previous regime are also responsible for lower credit growth,” he added.
However, a senior central bank official predicts the private sector credit growth may increase slightly in December 2024.
“It has maintained a falling trend in recent months following political unrest that led to the fall of the Sheikh Hasina government on August 5 last year and the severe floods in different parts of the country,” he explained.
Meanwhile, outstanding loans in the private sector rose to Tk 16,643.24 billion in November 2024 from Tk 16,562.02 billion a month before. The figure was Tk 15,459.41 billion in November 2023.