Private sector credit growth continues its forward thrust despite liquidity crisis and rising interest rates as businesses jump into an expansion mode.
In January, private sector credit growth stood at 18.36 percent, up from 18.13 percent the previous month -- and way past the ceiling of 16.8 percent set for the latter half of fiscal 2017-18.
“Demand for credit is on the rise because of huge business expansion in the private sector,” said Anis A Khan, managing director of Mutual Trust Bank.
So much, that the double-digit interest rate is not deterring borrowers, he said.
Khan hopes the interest rate on lending will not go up any further after the central bank extended the deadline for lowering banks' loan-deposit ratio from June to December.
With the view to curbing aggressive lending, the central bank on January 30 had instructed banks to bring down their loan-deposit ratio to 83.5 percent from 85 percent.
The BB move induced a panic and liquidity crunch among banks, pushing up the interest rate in the process. This prompted the BB to extend the deadline for lowering the ratio.
The state banks are also increasing their loan book, contributing to the higher private sector credit growth, said Mohammad Shams-Ul Islam, managing director of Agrani Bank.
The public banks have enough room to widen their loan book but they cannot do so because of a ceiling set by the BB on their loan growth with the view to improving their financial health.
Agrani has requested the central bank to raise its loan growth ceiling from the existing 15 percent, Islam said.
At the end of 2017, Agrani's loan-deposit ratio of stood at 60 percent, up from 47.83 percent a year earlier. Janata and Rupali also saw their ratios jumo to 60 percent.
Sonali Bank has the lowest loan-deposit ratio among all the banks: 38 percent.
This prompted BB Governor Fazle Kabir to ask the country's largest lender to bump up its lending in order to make the business commercially sustainable.
At the end of January, the banking sector's total outstanding loans stood at Tk 851,414 crore, according to data from the Bangladesh Bank.
The public sector credit growth was 11.70 percent in the negative in January against the monetary policy target of 8.30 percent set for June this year.