Bangladesh’s private sector credit growth dips below 7% amid economic uncertainty

Private sector credit growth in Bangladesh has plummeted below 7% in June, reflecting a sharp slowdown in lending amid high interest rates and uncertainties following the change in government.

According to the latest data from the Bangladesh Bank, private sector credit growth recorded a mere 6.40% in June, a level not seen in recent years.

This marks the second time this year that credit growth has fallen below 7%, consistently hovering around that figure without exceeding it in any month.

Talking to UNB, Dr Mustafa K Mujeri, Executive Director at the Institute for Inclusive Finance and Development (InM), attributed the decline to several factors.

He said political uncertainty, a conflict-ridden environment, and disruptions to law and order are deterring entrepreneurs from taking on new investment risks. The banking sector itself also plays a role in this slowdown.

Extensive financial irregularities in previous years have left many banks grappling with liquidity shortages, thereby reducing their lending capacity, he said.

Besides, banks are now much more cautious in extending credit due to the immense pressure from soaring non-performing loans (NPLs), said Mujeri, a former Chief Economist of the Bangladesh Bank.

Dr Khondaker Golam Moazzem, Research Director at the Centre for Policy Dialogue (CPD), said that continuous decline in private sector credit growth signals a significant impending crisis for the economy.

This sustained decline points to a growing crisis in both the banking sector and the broader business environment.

Reduced credit growth directly translates to fewer new industries being established, less business expansion, and consequently, fewer employment opportunities being created.

The economists believe that the situation is unlikely to improve significantly before the upcoming national elections. If, for any reason, the national elections are delayed, the situation could further deteriorate.

A lack of an acceptable resolution regarding the mutual imposition of tariffs by the United States on Bangladeshi products could also have a negative impact on the economic outlook, they said.

Bangladesh Bank's monthly data reveals a consistent downward trend in private sector credit growth over recent months. 

In December 2024, credit growth stood at 7.28%, followed by a slight drop to 7.15% in January and further to 6.82% in February. 

A modest recovery was seen in March at 7.57%  and in April at 7.5%, but it declined again to 7.17% in May, reflecting persistent instability in lending trends.