Private credit flow rises further in Dec

Private sector credit grew for the seventh month in December, reaching 10.68% in December year on year as the external and internal economic activities are picking up showing a steady fiscal recovery.

Bangladesh Bank data shows the amount of private sector credit was Tk11.41 lakh crore in December 2020.

In December 2021, the amount rose to above Tk12.63 lakh crore.

The month registered a 0.57 percentage point growth in December against 10.11% in November.

In January 2021, the credit growth was 8.46% which increased in February to 8.51% and in March to 8.79%. But the flow dropped in the next two months.

Industry insiders attributed the current growth to the rise in excessive imports, especially capital machineries.

The BB announced the monetary policy in July last year where the target for private sector credit growth was set at 14.8% for FY22.

If compared with the target, the banks are still lagging behind in credit disbursement by 4.0%.

According to the BB data, credit flow to the private sector dropped significantly in May last year due to Covid reaching to as low as 7.55%. 

After the sluggish trend, the credit flow started rising gradually from June as the severity of Covid eased, maintaining a stable trend until December last year.  

In July and August 2021, the growth was 8.38% and 8.42% respectively. It grew to 8.77% in September and 9.88% in October.

In the report published in the Quarterly Financial Stability Assessment Report in September quarter, the BB Governor Fazle Kabir said COVID-19 had pushed down the credit growth in FY21. However, private credit flows are recovering as the external trade has been picking up since early FY22. 

"We can expect the private-sector credit growth to regain its momentum by the end of this calendar year if the improving trend of the pandemic continues," he said. 

Meanwhile, with the increase in import of capital machinery, payment for vaccines, and resumption of international travels, the US dollar has slightly gained against Bangladeshi taka.

Bangladesh's import payments surged by around 54% in the first five months of the current fiscal year compared to the corresponding period of last year – indicating a strong and steady economic recovery in keeping with a sharp fall in coronavirus infections.

In the first five months of this fiscal year, capital machinery import saw 30% growth, the central bank's latest data show. 

During the period, import growth of intermediate goods was 70%, chemical fertiliser 105%, yarn 103% and drugs and medicines more than 1,000%, central bank data show.

Policy Research Institute (PRI) executive director Ahsan H Mansur told The Business Standard Monday that private credit growth is a good indicator for the economy which indicates more investment in the country.

Expressing his fear that the Omicron transmission may hamper the private sector, Ahsan Mansur said that the credit flow may decrease in January as the Covid situation has deteriorated since early this year. In February, the situation will improve, increasing the credit flow, he added. 

He suggested keeping the private credit flow growth at 20% compared to last year for economic recovery – not more than that because it would create an untoward situation. 

Mutual Trust Bank Managing Director Mahbubur Rahman told TBS that the investment in various sectors is rising as the Covid situation is normalising increasing credit demand.   

He expressed hope that the deteriorating Covid situation would not impact the private sector that much. If the private credit disbursement reaches the central bank target, the economy will get its momentum fully. 

It was found from the central bank data that in the last month of the FY2019-20, the private credit flow plummeted to 8.61%. After that fall, the credit flow rose again to 9.20% in July depending on the governments' stimulus package loan.