Private sector credit growth fell to a 39-month low in December as businesses went on a cautious mode thanks to the mounting uncertainty centring on the 11th general elections.
Last month, credit growth stood at 13.20 percent, the lowest since September 2015, according to data from the Bangladesh Bank.
The growth was less than the central bank's target of 16.8 percent for the second half of 2018.
Not only businesses, banks too took on a guarded stance about expanding their lending activities, said economists and bankers.
Deposit growth has been slow all throughout last year in the absence of a vibrant business environment, said Salehuddin Ahmed, a former Bangladesh Bank governor.
“Election-centric uncertainty has ended, but there are still doubts on whether the private sector will get momentum.”
Besides, the government's recent borrowing spree from banks will crowd out the private sector, he said.
“The private sector will be deprived of credit,” he added.
Banks are still facing hardship in operating their business as they will have to slash their loan-deposit ratio by March this year, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a platform of the private banks' managing directors.
“We are giving an all-out effort to adjust the loan-deposit ratio and this will have an impact on the private sector credit growth,” he said.
As per the central bank's instruction, conventional banks will have to lower their loan-deposit ratio to less than 83.50 percent by March from the existing ceiling of 85 percent and Shariah-based banks to 89 percent from 90 percent.
“The polls have just ended, so it will take more time to foresee the future trend of credit growth,” said Rahman, also the managing director of Dhaka Bank.
The monetary policy programme could never stimulate the economy, so the missed credit growth target would not create any problem, said AB Mirza Azizul Islam, a former finance adviser to a caretaker government.
The central bank had earlier cut cash reserve ratio and repurchase agreement (repo) rate, and changed the deadline for adjusting loan deposit ratio a number of times, but the initiatives have failed to make the private sector vibrant, he said.
Bangladesh will have to work further to improve corporate governance and ease of doing business to give a boost to the private sector, Islam said.
He also called for upgrading the transport sector and enhancing efficiency of ports.
“Monetary policy is able to tackle inflation in developed countries while in the developing nations like Bangladesh it could hardly do it.”