Private-sector credit growth stays below 5% for fifth straight month

The latest growth rate was marginally higher than the 4.47% recorded in June, which was the lowest on record. It also remains well below Bangladesh Bank’s private-sector credit growth target of 6.80% through December

Highlights:

Private-sector credit growth rose to 4.62% in July
Growth stayed below 5% for a fifth consecutive month
Energy shortages and weak demand are discouraging fresh business investment
Iran war has intensified Bangladesh’s fuel and gas crisis
Banks are becoming cautious amid default rates above 32%
Businesses face high inflation, production cuts and worsening economic outlook

Private-sector bank credit growth edged up to 4.62% in July but remained below 5% for a fifth consecutive month as an acute energy crisis and weak business demand continue to discourage fresh investment.

The latest growth rate was marginally higher than the 4.47% recorded in June, which was the lowest on record. It also remains well below Bangladesh Bank’s private-sector credit growth target of 6.80% through December.

Bankers and economists had expected private-sector lending to pick up after the election, with businesses expected to expand operations and new commercial activities to generate greater demand for bank financing.

That recovery, however, has not materialised. The intensifying war in Iran has worsened Bangladesh’s energy crisis, with fuel and gas shortages making businesses reluctant to undertake new investments.

Dr Md Ezazul Islam, director general of the Bangladesh Institute of Bank Management, said, “There was an expectation that private-sector bank credit would increase after the election. However, as the energy crisis has intensified because of the war, businesses are not starting new ventures. Still, we hope it may gradually increase in the coming months.”

According to Bangladesh Bank data, private-sector credit growth stood at 4.98% in May, 4.75% in April and 4.72% in March. The 4.47% recorded in June replaced March’s figure as the lowest on record, keeping credit growth below 5% for four consecutive months before the July increase.

Bankers said the decline in private-sector credit flow has been continuing since August 2024, when many large industrial groups shut down some of their businesses.

Even companies that have kept their operations running have cut production by as much as 30-40%, they said. The slowdown in production and the lack of business expansion have had a broader impact on economic activity.

“Private-sector bank credit increases when there is demand. But currently, businesses have no plans to start new ventures. The main reason is the energy crisis. The severe shortage of gas and fuel is preventing a business-friendly environment from developing, and this is the main obstacle,” said Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).

Dr Md Touhidul Alam Khan, managing director and CEO of NRBC Bank, said the record-low private-sector credit growth reflected problems on both the supply and demand sides.

“On the supply side, banks – burdened by default rates exceeding 32% – are becoming increasingly risk-averse and redirecting funds towards safer government securities,” he said.

“On the demand side, businesses are postponing or abandoning investment plans amid gas shortages, persistently high inflation and a deteriorating economic outlook,” he added.

Bankers said the energy shortage has forced industrial establishments in different parts of the country to temporarily suspend operations, disrupting production. In some areas, factories have shut down completely.

The prolonged weakness in private-sector credit reflects both subdued demand for new loans from businesses and growing caution among banks, while the energy crisis continues to constrain industrial activity.

Source: The Business Standard