Private sector credit growth fell short by about two percentage points from the central bank-set target of 15.5 percent in the second half of last fiscal year.
Year-on-year credit growth in the private sector stood at 13.6 percent in June, the last month of the fiscal year, slightly up from 13.57 percent in May and 13.27 percent in April, according to provisional data from Bangladesh Bank.
The central bank linked the slowdown to a three-month spell of political instability, including non-stop strikes and blockades that began on January 5.
“An entire quarter -- from January to March -- was lost to the political turmoil and no sensible businesses had gone for new investments during the period,” Biru Paksha Paul, chief economist of the BB, told The Daily Star yesterday.
Paul said though there are signs of a gradual improvement in the investment, it is yet to pick up to full potential as investors remain watchful of the situation. “Investors are a bit apprehensive because of the lost quarter.”
However, the figures show the private sector credit growth rate was slightly higher in the immediate past fiscal year than in the previous two years. Private sector credit grew 12.29 percent in 2013-14 and 10.85 percent in 2012-13, down from 19 percent in the preceding year. Despite the poor credit flow, the BB has been targeting higher credit growth --between 15.5 percent and 16.5 percent -- for the past three years.
Private investment, which is the engine of growth, has remained stagnant at 22 percent of gross domestic product or GDP, for the last three years. Though public investment has increased to 7 percent now from the previous 5 percent, it is not enough to boost growth to generate much-needed employment.
Amid this situation, the central bank will announce the new monetary policy for July-December period by the end of this month, as the first half of the new fiscal year began on July 1.
Boosting investment and growth through the upcoming monetary policy would be the biggest challenge for the central bank, analysts said. Also, how the BB deals with the exchange rate to stimulate exports and liberalisation of capital accounts, which they believe would help reduce the growing menace of illegal capital flight from the country, will also be an issue.
There are also concerns on weak governance, high levels of nonperforming loans and the spread between lending and deposit rates in the banking sector.
The investment ability of some big business groups, which are the traditional big borrowers, has been squeezed and many of them are currently loan defaulters, according to Khandokar Golam Moazzem, additional research director of Centre for Policy Dialogue (CPD).
“If new entrepreneurs are not created, it would be tough for Bangladesh Bank and the commercial banks to boost credit depending on a handful of big borrowers,” he said.
Moazzem suggested the BB set the inflation target below 6 percent, which he said would impact positively in the lending rates and spread. He said declining oil and food grain prices are an advantage for the BB in this regard.
“Also, it is a good time to devalue the local currency to strengthen competitiveness of exporters,” he added.
Helal Ahmed Chowdhury, former managing director of Pubali Bank, sees huge credit growth potential in micro, small and medium enterprises (MSMEs).
“Banks have to work to bring the MSMEs into their credit portfolio,” said Chowdhury, a four-decade veteran of the banking sector.
The former banker hoped that prevailing political stability would contribute to the private sector credit growth in the coming days.