Business revival lifts credit growth to 13-month high
Private sector credit growth in Bangladesh accelerated to 9.44 per cent in October, the highest in 13 months as the economy is running in full swing, shaking off coronavirus fallout.
The containment of the second wave of virus infections has largely encouraged businesses to go for expansion, bankers say.
The credit growth had faced sluggishness right after the coronavirus arrived on the shores of the country in March last year as demand plunged.
In September last year, credit growth stood at 9.48 per cent. But it hovered around 8 per cent before October this year.
Abul Kashem Md Shirin, managing Director of Dutch-Bangla Bank Ltd, said that the demand for working capital and import financing had increased to a large extent in recent months as the coronavirus situation at home and abroad improved.
"This has played a key role in pushing up the credit growth."
In addition, businesses are now seeking loans for project financing to set up new industrial units as their confidence returned after the government tackled the second wave successfully.
Against the backdrop, the liquidity stress in the banking sector might deepen in the days to come. So, the central bank should keep monitoring the market to ease the situation, Shirin said.
The central bank has already taken a decision to stop mopping up money from the market to mitigate the liquidity crisis.
The interest rate in the call money market, a platform where banks and non-bank financial institutions lend and borrow from each other on an overnight basis, shot up to 4.52 per cent on November 18, up from 2.25 per cent on October 31.
The call money rate, however, declined to 3.75 per cent in November after the central bank stopped mopping up taka through the Bangladesh Bill.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said that some borrowers who had taken stimulus funds were now unable to repay the loans.
So, lenders have started to renew the loans to protect the borrowers from becoming defaulters, increasing the volume of the loans in the banking sector, he said.
He, however, said that the demand for loans was now maintaining an increasing trend.
Emranul Huq, managing director of Dhaka Bank, said that the central bank had earlier offered deferral supports to businesses to repay the foreign loans related to import financing.
The loans are maturing, expanding the credit volume, he said.
On top of that, the reopening of educational institutions has also given a boost to the credit growth, he said.
For instance, the small enterprises that run businesses centring schools, colleges and universities have resumed their operations and are now seeking microloans.
Huq, however, expressed concerns that the credit growth would face another disruption if the new variant of Covid-19 spread in the country.
Md Arfan Ali, managing director of Bank Asia, attributed the import-led financing for the acceleration of credit growth.
Between July and October, the settlement of letters of credit, also known as actual import payments, stood at $23.37 billion, up 51 per cent year-on-year. This is largely because commodity prices in the global market have risen sharply in recent months.
Mohammad Shams-Ul Islam, managing director of Agrani Bank, thinks the credit growth would rise steeply in the coming days as clients are seeking funds desperately to expand their businesses.
"This will create a pressure on the liquidity management of banks," he said, urging the central bank to take appropriate measures to tackle the situation.
The central bank has set a private sector credit growth target of 14.8 per cent for the current fiscal year. It missed its goal in the last fiscal year after the growth decelerated to 8.35 per cent against the target of 14.8 per cent.