Private sector credit growth increases

Private sector lending rate of the country has begun rising to recover from a decade-low growth after investments plunged amid the coronavirus pandemic at the end of 2019-20 fiscal year.

The loans distributed by the banks stood at Tk 10.95 trillion by the end of July with a 9.2 per cent year-on-year growth, reports bdnews24.com on Sunday citing Bangladesh Bank data.

The credit flow growth to the private sector had dropped to the lowest level - 8.61 per cent - in June, the last month of the previous fiscal year.

In the 2017-18 fiscal year, the registered credit flow grew by 16.94 per cent and in the following financial year it saw a 11.32 per cent growth.

The Bangladesh Bank had set the target for private sector credits in 2019-20 at 14.8 per cent in the monetary policy. The target remains the same for 2020-21.

Researchers and bankers have said that the credit flow is rising because the banks have begun to disburse loans from the government’s coronavirus stimulus packages of more than Tk 1 trillion to cushion the economy from the effects of the pandemic crisis.

“The impact of the pandemic is gradually diminishing. Remittance inflow is on the rise along with exports. Imports are also increasing. Owners are getting credits from the bailout funds,” researcher Ahsan H Mansur, the chairman of BRAC Bank, said.

“The economic cycle has started moving. But when it will return to normal is unknown. Because no one can tell when the situation will get back to normal after the pandemic,” said Mansur, also the chairman of private research firm Policy Research Institute.

AB Mirza Azizul Islam, a former finance advisor to the caretaker government, said: “A key controller of the investment growth is loans to private investors. If that does not rise, investment will not increase. Also, jobs won’t be created, the economy won’t gain momentum and the GDP growth target won’t be met.”

 “Investment has been stagnant for some time in the country. The coronavirus crisis caused it to slide further. The good news is that the new fiscal year has begun with growth positively. We‘re hoping that this growth stays positive in the days to come,” he said.

In the monetary policy announced for the 2020-21 fiscal, the central bank has set 19.3 per cent as a target for domestic lending growth -- 44.4 per cent for the government and 14.8 per cent for the private sector.

Although the target credit flow rate in the private sector is lower than that of the government sector, the projected loan amount of the private sector is much higher than the government.

The idea is that the 14.8 per cent lending growth would suffice to strengthen the new investments required to salvage the pandemic-hit economy.

According to data published by the central bank on Thursday, the total loans disbursed domestically at the end of July amounted to Tk 13.2 trillion, including Tk 1.96 trillion government borrowing and the rest went to the private sector. The overall domestic credit growth at the end of July stood at 14.14 per cent.

The growth of lending flow surged higher in the last two years due to enthusiastic investments made by some banks.

The growth of credit flow has been dropping since then despite central bank moves to keep the growth on an upbeat note.

The Bangladesh Bank provided more than a hundred directives to implement the stimulus packages smoothly since the outbreak began. It has created a refinancing fund of more than Tk 510 billion and eased rates related to lending.