Private credit growth slows to 9.95% in January
The central bank has revised downward all money supply targets to contain surging inflation
Private sector credit growth dipped to 9.95% in January, down 0.18 basis points from December, amid Bangladesh Bank's contractionary monetary policy that keeps interest rates higher to diminish the loan appetite for businesses.
Bangladesh Bank data shows that private credit growth was 10.13% in December 2023, the highest in six months.
Private credit stood at Tk15.67 lakh crore at the end of January 2024, up from Tk14.26 lakh crore in January 2023.
The central bank has set a private credit growth target of 10% for the January-June period of the fiscal 2023-24. The growth was within the central bank's target in January.
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Bankers say as the Bangladesh Bank has been sticking to a contractionary monetary policy since July 2023 interest rates on loans to customers are increasing every month.
The cost of funds for banks has increased as the policy rate has been increased several times, leading to a decrease in private sector credit growth, they say.
They say several banks in the country have been facing a liquidity crisis for the past year. Due to their own liquidity crisis, these banks have reduced loan disbursement to customers, they say.
Central bank data shows that private sector credit growth was 12.62% in January 2023. Since then, credit growth had been declining continuously until September. Although it increased slightly to 10.09% in October, the growth fell again in November.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told TBS that one of the main reasons for the decline in private sector credit is the significant increase in interest rates on loans.
"Customers were getting loans at 8-9% interest rates until June 2023. With the increase in the benchmark rate in the current loan interest rate, the bank loan interest rate increased to 13.13% in March. As the loan interest rate increased by more than 4% in a few months, private sector credit growth is slowing down," he said.
The central bank reduced money supply growth in its two monetary policies of the current fiscal year to control surging inflation. Besides, the central bank also increased the repo rate, the rate at which it lends to banks, several times to increase its impact on the market. As a result, the cost of funds for banks increased. On the other hand, the interest rate on loans to customers is also increasing gradually.
In the past few months, the central bank increased the repo rate multiple times. In June 2023, the repo rate was 6%, which has now risen to 8%.
The central bank has revised downward all money supply targets. The private sector credit growth target has been reduced to 10% for the second half of FY24, down from 11% set for the first half. Also, the broad money supply has been trimmed to 9.7% from the earlier target of 10%.
Officials from several banks' treasury departments have indicated that one of the major reasons for the reduction in private-sector lending is the significant decrease in the country's import volume.
"Banks have extensive loans available for business owners against their imports. Due to a decrease in the amount of these loans, private sector borrowing is diminishing among businesses," said an official.
According to a Bangladesh bank report, imports dropped by $21 billion last year due to various restrictions imposed by the central bank to tackle the dollar shortage, leading to a slump in investment which eventually slowed down the country's economic growth.
The country's total imports declined by 24.32% to $65.39 billion by the end of 2023 from $86.40 billion in the previous year, according to the Bangladesh Bank data.
During the announcement of the monetary policy for the second half of the current year, the central bank governor said, "There is no concern about GDP growth; rather, price stability remains our primary objective."
An official of the central bank said that private businesses now import less capital goods and machinery. Most of the loans now going to the private sector are to meet consumer goods' import costs, he said.
The official said that the interest rate of consumer loans is increasing every month as the central bank raised its policy rate (lending tools to banks) several times in the current financial year.
