Private sector credit growth continues to slow down
Economists and bankers say the primary reason for the slowdown in bank lending is stagnation in new investment
Private sector bank credit growth declined again in December 2025, remaining below 7% for the seventh consecutive month.
At the end of December 2025, private sector credit growth stood at 6.20%. In November, growth was 6.58%, while in December 2024 it was 7.28%.
Economists and bankers say the primary reason for the slowdown in bank lending is stagnation in new investment. With fewer new investments, imports of capital machinery have fallen.
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Persistently high inflation has also weighed on investment decisions, discouraging businesses from undertaking new projects. Political instability is cited as the main factor behind this reluctance to invest.
Professor Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue (CPD), said: "Businesses are not making new investments. If new investment does not increase, bank credit will not expand either. Given the current situation, businesses will refrain from investing. This condition is likely to persist until the next election. Lower investment will worsen unemployment, which in turn will slow GDP growth."
He added: "As long as inflation remains high, it will continue to exert pressure on private sector growth."
Mohammad Ali, Managing Director of Pubali Bank Limited, said: "There are no new work orders at the moment because of the prevailing political environment. In such circumstances, it is natural that businesses will not invest. Hopefully, an investment-friendly environment will emerge after the election."
Given the current situation, businesses will refrain from investing. This condition is likely to persist until the next election. Lower investment will worsen unemployment, which in turn will slow GDP growth.
A deputy managing director of a private bank told The Business Standard that many businesses have shut down following the fall of the Awami League government, while those still operating are unable to function at full capacity. Several factories belonging to large groups such as Nassa, Beximco and Gazi have closed. As a result, these firms are no longer borrowing from banks. When factories were operational, they imported capital machinery, but even the firms still running have reduced production by 60–70%.
According to Bangladesh Bank data, settlement of liabilities for capital machinery imports declined by more than 16% during July–November.
The last time private sector credit growth reached double digits was in July 2024, at 10.13%. From August that year, growth began to decline steadily, falling to 6.23% in October 2025—described by experts as the lowest level on record.
Bangladesh Bank had projected private sector credit growth of 7.2% by December 2025. The actual figure therefore fell short of the central bank's monetary policy target, indicating that businesses are borrowing significantly less than anticipated.
Controlling inflation remains the biggest challenge
Bangladesh Bank has indicated that it will reduce the policy rate once inflation comes under control. In December, headline inflation rose to 8.49%. The central bank governor has said the policy rate would be lowered if inflation falls into the 7% range. The policy rate currently stands at 10%, keeping average bank lending rates between 11% and 12%. Business groups have repeatedly urged Bangladesh Bank to rein in inflation.
A senior official at a private bank told The Business Standard that unless inflation is controlled, private sector credit growth will not increase. "Businesses are unwilling to operate with high interest rates, as this raises their cost of doing business. Controlling inflation is therefore Bangladesh Bank's biggest challenge," he said.
Mohammad Hatem, President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said: "Doing business with high interest rates has become extremely difficult. Many factories have shut down due to a lack of orders, and others are not expanding operations. As a result, many business groups have reduced their reliance on bank borrowing."
A senior executive of the TK Group said borrowing from banks has significantly increased the cost of doing business due to high interest rates.
Banks turn to government securities for income
With private sector credit demand weakening, banks have increased investment in treasury bills and bonds. A senior official at a private bank said that banks are gravitating towards these safer instruments amid weak loan demand. At the same time, the government is borrowing heavily from banks through treasury bills and bonds, including an additional Tk10,000 crore outside the regular borrowing calendar during the October–December quarter.
Limited opportunities for private investment have allowed banks to earn nearly 11% interest on government securities, which are effectively risk-free. For many conventional banks, a substantial share of income now comes from this segment.
Although there were concerns at the beginning of 2025 over rising deposit rates, high inflation, weak loan demand and political uncertainty, the reality has unfolded differently.
Profits at private banks – particularly stronger institutions – have increased not through loan expansion but through large earnings from government securities. This has become a new lifeline for the banking sector and is significantly reshaping banks' balance sheets.
