Private sector credit jumps in June
The banking sector saw a big jump in credit flow to the private sector in June, backed by high import costs amid rising dollar prices.
The credit grew to 13.66% during this time – the highest in the last 43 months. The rate was higher than the previous month's 12.94% and close to the monetary ceiling of 14.1% set for the current fiscal year.
Average credit growth of the last fiscal year stood at 10.67%, far below the monetary target of 14.8%, according to Bangladesh Bank data. Making inroads in March 2022, the Covid-19 pandemic along with deepening uncertainties had pushed down the private sector credit growth to around 8%.
Bankers put this healthy growth down to rising import costs because of the continuous gain of the dollar against the taka and the extended cash margin for imports of different goods, including non-essential ones.
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Safiul Alam Khan Chowdhury, managing director and chief executive officer of Pubali Bank, told The Business Standard that credit flow to the private sector has gone up mainly owing to increased imports of capital machinery and other industrial materials in post-pandemic times.
Since January this year, Pubali Bank's lending to the private sector has increased. Its disbursements in the last few months amounted to around Tk3,000 crore, he noted.
As part of a tightening of money flow, private sector credit growth ceiling was slashed to 14.1% for FY23 from 14.8% of FY22, according to the monetary policy statement for the current fiscal year.
In July-May of the last fiscal year, the country's import payments rose by 39% to $81. 49 billion, marking a sharp increase since the second wave of the pandemic.
Seeking anonymity, the managing director of a first-generation private bank said some banks' lending to the private sector has increased since the reopening of economic activities in full swing after the pandemic-led restrictions.
Besides, the rising prices of dollars have led to more demand for cash liquidity, he noted.
The central bank had to sell additional dollars as a result of growing imports in the country, which put the country's reserves under strain. The increased cash margin provision against imports of different products has also given a rise to demand for bank loans, he also said.
The Bangladesh Bank has imposed a 100% cash margin for opening letters of credit on cars, electronics, gold, precious metals, RMG, and pearls, among other items, to discourage imports in a bid to keep the country's currency and debt management more integrated and stable.
