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Private-sector credit growth declined further in January, mainly due to lower loan demand driven by ongoing political uncertainty and higher lending rates, bankers said.
The growth in credit flow to the private sector came down to 7.15 per cent in January 2025 on a year-on-year basis from 7.28 per cent a month ago, according to the central bank's latest statistics released on Sunday.
It was 2.65 percentage points lower than the Bangladesh Bank's (BB) target of 9.80 per cent for the second half (H2) of the current fiscal year (FY).
"Ongoing political uncertainty, coupled with higher interest rates, has reduced the demand for fresh credit in recent months," a senior executive of a leading private commercial bank (PCB) told The Financial Express (FE) while explaining the main causes of lower private sector credit growth.
He also said most of the banks are now maintaining a cautious approach while sanctioning fresh loans to avert new classifications in their loan portfolios.
"Lower activities by some conglomerates linked to the previous regime have also pushed down the private sector credit growth," the private banker noted.
Talking to The Financial Express, a senior BB official stated that private sector credit growth is expected to increase gradually in the coming months as imports have already risen due to the holy month of Ramadan.
Actual imports in terms of settlement of letters of credit (LCs) grew by 2.08 per cent to $40.25 billion during July-January of FY25 from $39.43 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 2.63 per cent to $41.02 billion in the first seven months of this fiscal year from $39.97 billion in the same period of FY24.
"Private sector credit growth may cross 8.0 per cent by the end of June 30," the central banker predicted without elaborating.
Echoing the BB official, Md Ali Hossain Prodhania, supernumerary professor at Bangladesh Institute of Bank Management (BIBM), said the private sector credit demand is increasing following higher export earnings and import financing. Mr Prodhania, also former managing director (MD) of Bangladesh Krishi Bank, said most of the banks prefer investing their excess funds in risk-free government securities (G-Sec) mainly due to higher yields.
Meanwhile, outstanding loans in the private sector came down to Tk 16,801.10 billion in January 2025 from Tk 16,852.71 billion a month before. It was Tk 15,679.43 billion in January 2024.
Private sector credit growth has continued to decline in recent months due to political unrest, which led to the fall of Sheikh Hasina's government on August 5 last year, as well as severe floods affecting different parts of the country, another BB official explained.
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