Pent-up demand drives up industrial credit growth to 19% 

Credit flow to the industrial sector experienced a 19% year-on-year growth in 2021, with businesses running in full swing by shaking off pandemic fallouts to cater to pent-up consumer demand. 

Last year, banks and non-bank financial institutions disbursed Tk4,29,670 crore in loans to the industrial sector, while the disbursal was Tk3,61,302 crore in 2020, according to central bank sources in the know of the development.

Industry insiders say businesses felt encouraged to go for expansion after the pandemic situation had started to turn the corner since the beginning of last year, as reflected in rising import payments. 

In March 2020 when Covid-19 made inroads into the country, industrial credit growth suffered a record fall following a plunge in demand. 

The loan growth plummeted to negative 35% in June that year. Later, in September 2020, credit growth came out of the negative territory and stood at 12.86%, but further dropped to 9.93% year-on-year in December 2020.

In January 2022, the private sector credit growth in Bangladesh surged 11.07% year-on-year – the highest in 29 months.

"When virus infections started to fall, Industries returned to full operation, leading to a rise in credit demand. The continuation of stimulus loans for the industrial sector in the second phase also contributed to credit growth," Md Habibur Rahman, executive director and chief economist at Bangladesh Bank, told The Business Standard.

The government launched 28 stimulus packages for businesses to keep economic activities afloat in the pandemic time in 2020. The central bank operated 10 of the bailout packages. Yet, credit disbursements had not reached the target. 

Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, said investments in all sectors have gone up in the post-pandemic time as a result of rising demand. So, the overall private sector credit marked a rise.

According to Bangladesh Bank data, in September-December of last year, the loan disbursement rose more than 24% year-on-year to 1,24,865 crore.

Emranul Huq, managing director at Dhaka Bank, told TBS that industrial credit growth will continue to go up in the coming days as demand is on the rise as reflected in rising imports of capital machinery and other industrial raw materials. 

In July-November of FY22, the country's imports of capital machinery amounted to $1.66 billion, which reached $2.69 billion in December. In July-December this fiscal year, import payments for capital machinery grew by 67.37% year-on-year. In the entire FY21, the country's spending for capital machinery was $3.74 billion.

The country's overall import payments in the first six months of the current fiscal year grew by 52.91% year-on-year.

In the meantime, the industrial loan recovery rose by over 10% to Tk3,51,627 in 2021 year-on-year. At the same time, the amount of classified loans also marked an uptick of 8.47% last year, according to sources at the central bank.

At the end of December last year, default loans stood at Tk49,262 crore from Tk45,415 crore at the same time a year ago.

As of December last year, total outstanding loans of financial institutions amounted to Tk6,28,988 crore with a 9.9% year-on-year increase. State-owned banks account for 29.31% of classified loans, while default loans of private banks, Islami Sariah-based banks and specialised banks stood at 33.32%, 12.71% and 18.2% respectively.