Sustainable financing falls 8% in Jul-Sep as CMSME, agri investment dips

Loan disbursements to the sustainable finance sector by banks and non-bank financial institutions (NBFIs) dropped by 8.12% in the July-September quarter compared to the previous three months, primarily due to reduced investment in the CMSME and agriculture sectors.

According to data from the Bangladesh Bank, the disbursements were 12.90%, significantly short of the target of 20% set by the central bank for sustainable finance.

In the three months to September, Tk33,473 crore went to the sustainable finance sector, which is down by Tk3,024 crore from the previous quarter.

However, the loan disbursements in green finance stood at 8.01%, exceeding the 5% mandate set by the monetary authority.

Bankers say banks are facing a liquidity crisis, which is why they are lending less. In addition, the country's investment has declined due to global economic uncertainty and pre-election political instability. As a result, overall private sector investment is declining.

Sustainable finance refers to the business conducted in such areas and in such a manner that helps the overall reduction of external carbon emissions and internal carbon footprints.

The banks and NBFIs are the major sources of financing industrial projects such as steel, paper, cement, chemicals, fertilisers, power, and textiles, which cause maximum carbon emissions.

According to central bank data, the growth of private sector loans has been below 10% since the beginning of 2023, compared to around 13% for the entire previous year.

The openings and settlements of letters of credit in the first four months of the current financial year, beginning in July, decreased by 11.52% and 24.07%, respectively, compared to the same period a year ago.

According to a central bank report, lending to sustainable agriculture has declined by around Tk1,200 crore, to sustainable CMSME by around Tk300 crore, and to socially responsible financing by around Tk2,000 crore.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said, "The decline in private sector loans is due to the decline in imports of capital machinery and raw materials for industries. In addition, foreign private loans are declining.

"Since non-performing loans are increasing in banks, they are becoming more cautious in lending, which has affected growth."

A senior official of a state-owned bank said, "Due to the appreciation and shortage of the dollar, entrepreneurs are unable to import. As a result, working capital demand loans in the green and sustainable sectors have declined."

Meanwhile, although lending in the sustainable sector declined in the September quarter, lending in the green finance sector increased by Tk428 crore, or 10.89%, compared to the previous quarter.

In September 2023, green finance lending was Tk4,356 crore, compared to Tk3,928 crore in the previous quarter.