Private sector credit grows nearly 14% in July

The banking sector saw a big jump in credit flow to the private sector in July on the back of deferred LC payments and high import costs amid rising dollar prices.

The credit grew to 13.95% during the time, which was higher than the previous month's 13.66% and close to the monetary ceiling of 14.1% set for the current fiscal year.

At the end of July this year, the private sector credit stood at more than Tk13.52 lakh crore in contrast to around Tk11.87 lakh crore in the same time a year ago.

The average credit growth of last fiscal year stood at 10.67%, far below the monetary target of 14.8%, according to the Bangladesh Bank data.

Meanwhile, public sector credit also rose by 23.38% to Tk3,19,897 crore in July.

Bankers put this healthy growth down to rising import costs because of continuous gain of dollars against taka and the extended cash margin for imports of different goods, including non-essential ones.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, told The Business Standard that lending rate has not been raised despite a rise in the central bank's policy rate to keep private sector's activities afloat, causing credit flow to the sector to grow further.

The private sector has gone for more bank loans as they are now having to settle deferred LC payments, he said.

The treasury head of a private bank told TBS that lending to the private sector has been growing since the beginning of the current year. His bank saw a rise of around Tk7,000 crore in loans in the last six months.

As part of tightening money flow, the private sector credit growth ceiling was cut to 14.1% for FY23 from 14.8% of FY22, according to the monetary policy statement for the current fiscal year. In 2020, the pandemic along with deepening uncertainties had pushed down the private sector credit growth to around 8%.

In the last fiscal year, the country's import payments rose by nearly 36% to $82.49 billion, marking a sharp increase since the second wave of the pandemic, while export receipts amounted to $49.25 billion. In FY22, trade deficits stood at $33.24 billion.

Former Bangladesh Bank governor Salehuddin Ahmed said, "We need to reduce lending to the private sector to tame inflation. For this, the lending rate should be raised."

If the increased credit flow to the private sector is spent on manufacturing, it will not stoke inflation, rather it will bring in positive for the country's economy, he said.

Bangladesh Bank data show, banks that are suffering from a shortage of dollars purchased $7.5 billion from the central bank for Tk67,500 crore in FY22.

Similarly, banks have continued to face the dollar crisis from the beginning of the current fiscal year.

According to the latest statistics, the central bank has sold $1.8 billion for Tk17,603 crore in the 47 days of the current fiscal year that began on 1 July.

To keep the foreign exchange market stable, the central bank has taken several steps, including elevating LC margins to reduce imports of luxury as well as less necessary goods. At the same time, the central bank continued to sell dollars to banks from its foreign exchange reserves to help settle urgent government imports.