Pvt sector credit growth surprisingly rises in July

Formal credit to the private enterprises increased significantly in July, which money market analysts termed 'very surprising' as overall economic activities were almost halted in that month because of mass uprising that led to the fall of Sheikh Hasina government on August 5, 2024.

Seeing the credit rise in the troubled month, they sense twin factors -possible loan-related irregularities by a vested group of people and rising overdue because of non-payment in LCs (letter of credits) might have contributed to the surprising rise in credit flow to the businesses.

The flow of credit to the private sector rises in such a way that overshot the projection of the private sector credit growth by the Bangladesh Bank (BB) under its monetary policy statement (MPS) of 9.80 per cent by December next.

According to the BB statistics, the private-sector credit growth increased to 10.13 per cent in July, which was 9.84 per cent in the previous month of June, 2024.

The outstanding volume of credit to private enterprises rose to Tk16.36 trillion until July last, which was 10.13 per cent higher from last year's July figure of Tk 14.85 trillion, the data showed.

Seeking anonymity, a BB official said they were expecting downward trend in private sector fund flow in July because of the mass protest initially launched by the Anti-Discrimination Student Movement.

"But what we observed is a completely reverse scenario, which is surprising," the central banker said.

The BB official feared that some loan-related irregularities might have taken place in the banking sector that could contribute to the unusual surge in disbursing formal credit to the private players in that crisis-hit month.

Former lead economist at World Bank's Dhaka office Dr Zahid Hussain expressed his surprise over the growth in private sector credit, saying that the overall economic activities were almost halted because of the nationwide student protest and violence.

Even internet communication was completely shut for five days across the country. Despite the fact, the credit flow to the private sector had increased in that month, he said.

"I can clearly say that the rise in credit flow in July has no relation with the economic activities. Nepotistic expansion of credit to favour certain group of people may have contributed to the rise," the eminent economist of the country said.

Managing Director and Chief Executive Officer of Mutual Trust Bank Syed Mahbubur Rahman said the LC overdue keeps increasing because of nonpayment issues.

To avert exchange rate-related volatility, the experienced banker said the volume of sight LCs continues to rise.

In sight mechanism, the LC has become funded within a short period.

"It could be another reason behind the credit flow rise," he added.

[email protected]