Private credit growth keeps falling in recent months

The private-sector credit growth  continues plummeting, painting not an encouraging picture for the economy largely dominated by the private sector.

Officials and money-market analysts say such a continuous downturn in the private-sector credit demand, despite marginal easing of import compression on the domestic market, is not a good sign for the $450 billion economy.

Apart from persisting energy crisis in the industrial hubs coupled with latest labour unrest and depreciation of the local currency against the American greenback, the existing business uncertainty stemming from the recent mass uprising made private entrepreneurs cautious on expansion of their businesses, according to them.

On the other hand, bankers seemed to have been very conservative in approving loans to the private sector players amid prevailing economic sluggishness to avert further buildups of the NPLs (non-performing loans).

The private sector credit growth keeps dropping remarkably in recent months to reach 6.82 per cent in February, 2025, which is believed to be the lowest in recent years.

The growth in credit to the private sector came down to 6.82 per cent in February 2025 on a year-on-year basis from 7.15 per cent a month ago, according to the central bank's latest statistics.

It was 2.98-percentage points lower than the Bangladesh Bank (BB) target of 9.80 per cent for the second half (H2) of current fiscal year (FY) 2024-25.

Seeking anonymity, a senior official of Bangladesh Bank (BB) said the private sector credit growth continued to decline in recent months due to recent mass-uprising and post-uprising uncertainty as well as severe floods affecting different parts of the country.

"We expect that the private sector credit growth may start increasing from the month of March that would be continued until June this year," the  central banker said while replying to a query.

He also predicted that the private sector credit growth may cross 8.0 per cent by the end of June 30.

Administrator of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) Md Hafizur Rahman said that banks were not feeling comfortable in giving loans to the private sector in recent months but they were much enthusiastic in investing in the high-yielding government securities.

On the other hand, there were a good number of large corporate entities who used to take a major share of the bank credits during Sheikh Hasina's regime.

Now, many of them are either in the run or in the prisons following changeover of the state power.

"These are probably some of the major reasons behind the gradual drop in the private sector credit growth," the administrator of the country's apex trade body said. He was, however, very confident that the situation would rebound in the coming months as there are some sorts of stability observed in key indicators like stable exchange rate, easing up import compression.

According to the official data, the actual import in terms of settlement of letters of credit (LCs) grew by 4.07 per cent to US$ 45.99 billion during the July-February period of the current fiscal year (FY), 2024-25, from $44.19 billion in the same period of the previous fiscal year.

On the other hand, the opening of fresh LCs, generally known as import orders, rose by 4.62 per cent to $47.28 billion in the first eight months of this fiscal from $45.19 billion in the same period of FY '24.

"We now prefer to invest our funds in the government-approved risk-free securities other than general lending to avert fresh classifications in our loan portfolios," a senior executive at a leading private commercial bank (PCB) told the FE.

Higher yields on the government securities have also encouraged the banks to invest more in the risk-free securities, the private banker explained.

"Lower activities by some conglomerates linked to the previous regime have also pushed down the private sector credit growth," the private banker noted.

Meanwhile, outstanding loans with the private sector rose to Tk 16843.84 billion in February 2025 from Tk 16801.10 billion a month before. It was Tk 15769.15 billion in February 2024.

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