Private credit growth is unlikely to pick up in the near future as most of the banks are reluctant to provide fresh loans after the move to enforce a single-digit interest rate.
The government and the top bankers last week agreed to bring down both lending and deposit rates to a single-digit from April 01 next.
The growth in credit flow to the private sector decelerated further in November as most of the banks maintained a 'conservative approach' towards lending, according to senior bankers.
The sector's credit growth came down to 9.87 per cent in November 2019 on a year-on-year basis from 14.01 per cent a year ago, according to the Bangladesh Bank's latest statistics.
This growth was 3.33 percentage points lower than the central bank's target of 13.20 per cent for the first half of fiscal year 2019-20.
Lower trade financing by the banks also pushed down the private sector credit growth in recent months, they explained.
Still, the bankers predicted that the 'wait-and-see' policy being followed by most private banks are unlikely to help lift the private sector credit growth.
Deposit growth in the banking sector may also decrease in near future after the government's fresh move to fix the interest rates of lending and deposits at 9.0 per cent and 6.0 per cent respectively from April 01, they said.
After a meeting with the chairmen and managing directors of private banks on December 30, finance minister AHM Mustafa Kamal told the reporters that the single-digit interest rate on all loans, except for credit cards, will be implemented from April 01, 2020.
The meeting also decided that the interest rate on deposits would be brought down to a maximum 6.0 per cent instead of the existing level.
"Most of the banks maintained a conservative approach to sanctioning and disbursing fresh loans, which has pushed down the private sector credit growth in recent months," said M A Halim Chowdhury, managing director and chief executive officer of Pubali Bank Limited.
The senior banker also said trade financing witnessed a falling trend because of lower growth in foreign trade that includes both export and import.
"The banks now prefer to invest their loanable funds in government securities than general investments," Mehmood Husain, MD and CEO of NRB Bank Limited, told the FE.
Higher bank borrowing by the government has indirectly affected the private sector credit growth in recent months, according to Mr Husain.
"Most of the banks had faced liquidity pressure during the first nine months of 2019 owing to the revised advance-deposit ratio (ADR) rules of the BB," the senior banker said while explaining the downward trend in private sector credit growth.
On September 17 last year, the central bank announced that the ADR would remain unchanged at 85 per cent for all conventional banks and at 90 per cent for the Shariah-based Islamic banks.
The central bank had earlier re-fixed the ADR at 83.50 per cent and 89 per cent for the conventional banks and the Islamic banks respectively. These rates were scheduled to come into effect from September 30.
"It will take time to pick up the pace of private sector credit growth," Mr Husain argued.
Meanwhile, outstanding loans with the private sector rose to Tk 10,358.15 billion in November from Tk 9,427.93 billion a year ago. It was Tk 10,259.58 billion in October 2019.
Talking to the FE, a BB senior official acknowledged the amount of private sector credit has increased, but the growth in percentage terms has decreased in recent months.
"We're reviewing the overall economic situation …," the central banker said.