Private sector credit growth far from target

The country's economy will turn around based on two factors – remittances and private sector credit growth. Although the recently-released Monetary Policy Review report of the central bank has expressed this optimism, private sector credit growth does not currently reflect this.

Credit growth is still far lower than the target though it increased slightly in December over November.

In December, the central bank reduced the credit growth target to 11.5% though it had been projected at 14.8% for the current fiscal year.

However, this goal was not achieved as growth is stuck at 8%. The main reason behind this is the uncertainty caused by the Covid-19 pandemic, think the people concerned.

They think though the government has announced various incentives packages for the private sector, businesses are trying to survive with the money of these packages. No one has a plan to make a new investment.

"We are not seeing any new projects from private entrepreneurs. It will take time to change the situation as the uncertainty caused by the pandemic is still there," said Mohammad Arfan Ali, former general secretary of the Association of Bankers (ABB) and managing director of Bank Asia.

Anis A Khan, former ABB president and former managing director of Mutual Trust Bank, told The Business Standard that credit growth increased slightly in December but he did not see the possibility of the growth increasing on a large scale in the coming days as the uncertainty is not gone.

"No investor will make a new investment or expand existing businesses amid this uncertainty," he said.

However, he is hopeful that the situation might change towards the end of this year if the vaccination programme is fully implemented and uncertainty is reduced.

AK Azad, former president of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI), also said the uncertainty was the main reason behind no new investment. He said the private sector will turn around as soon as Covid-19 leaves.

Meanwhile, Mir Nasir Hossain, another former president of the FBCCI, disagreed, saying there was some stagnation in private investments even before Covid-19 arrived and the pandemic just worsened the situation.

"The main reason for the stagnation is that the government's mega projects were not being implemented on time. If any industry is set up in a place other than the economic zone, utility facilities will not be provided. Due to such decisions of the government, there is no momentum in private investments," Mir Nasir said.

Since the beginning of the second half of the 2019-2020 fiscal year (January), private sector credit growth has slowed down. It did not revive due to the Covid-19 pandemic starting in March.

However, with the implementation of the incentives packages, credit growth increased to 9% after the beginning of the current fiscal year (July).

But it came down to 8% in October.

Liquidity in the banks is rising excessively as credit growth in the private sector is not increasing. At the end of December last year, the excess liquidity of banks stood at Tk2,04,700 crore.

Bank Asia MD Arfan Ali fears that the excess liquidity will increase the fund management costs of banks.

He also thinks that the income and profit from this sector will also decrease because of the inability to disburse loans as per the target.