Credit growth rises moderately

Private sector credit growth went up moderately in February to keep up with the recovering trend of the economy, but bankers say the rising coronavirus infections and deepening uncertainty have dipped the growth in March.

The year-on-year credit growth stood at 8.93 per cent in February, up from 8.32 per cent a month earlier, data from the central bank showed.

The February's growth is also the highest since October last year.

Businesses commenced to expand their enterprises heavily last month riding on the slower coronavirus infection, but the momentum has faced a roadblock this month when the deadly flu started spreading in a consistent manner, said managing directors of three banks.

The credit flow to the private sector has already decreased to a large extent as businesses have adopted a "go-slow" policy once again, they said.   

Bangladesh recorded at least 3,908 new infections of Covid-19 yesterday, which is the highest since July 3 last year.

Infection number in 24 hours remained above 3,500 for the sixth consecutive day yesterday.

"Businesses took a positive stance to start their businesses in the period of January and February. But, the rising infection has dealt a blow to the confidence for expansion of their businesses," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

Funds disbursed by banks have already seen a slower trend in March than in February, he said.

Businesses moved to import capital machinery and industrial raw materials last month, but the scenario has reversed in March, he said.

In addition, a good number of letters of credit (LCs) to import commodity products were earlier opened to fulfil Ramadan demand, putting a positive impact on private sector credit growth as well, Rahman said.

There is little hope to reach the credit growth at double digit this fiscal year due to the ongoing trend of the Covid-19 infection, Rahman said.

In its monetary policy statement for fiscal 2020-21, the central bank set a private sector credit growth target of 14.8 per cent by June this year.

The existing business slowdown has indicated that there is little chance to achieve the target.

Rahman predicted that the credit growth might hover between 8-9 per cent in the rest of the months of this fiscal year.

Emranul Huq, managing director of Dhaka Bank, said the lender had given out around Tk 900 in loans last year, which had increased its credit book by 3-4 per cent.

But, the loan disbursement has declined to a large extent this month as credit appetite has nosedived due to the upward trend of the infection, he said.

"We have also observed that export orders from European countries have started declining as some of them have recently declared strict restrictions on movement in order to tackle the spread of the coronavirus," he said.

Lower exports has a spillover effect in imports, he said.

The imported items of industrial raw materials largely use to produce the exported goods.

The lower imports have also brought a negative impact explicitly on the credit growth as well, Huq said.

"I do not see any ray of hope to rise in imports in the next few months given gravity of the coronavirus infection at home and abroad," he said.

Md Arfan Ali, managing director of Bank Asia, said commodity prices in the global market had recently escalated, which had also pushed the country's import payments up.

He, however, said there was a possibility that the credit growth might rise in March to some extent as the majority of banks normally tried to inflate their credit book in the last month of every quarter.

But, the ongoing trend will create a pressure on the credit growth in May and June, Ali said.

The outstanding loans in the private sector stood at Tk 11,53,511 crore as of February in contrast to Tk 11,40,023 crore the previous month.