Credit growth takes another beating in Nov

Private sector credit growth dropped in November once again due to the eroding confidence of businesses amid the second wave of coronavirus infections.

The year-on-year credit growth stood at 8.21 per cent in October, down 8.61 per cent from a month earlier, according to data from the Bangladesh Bank.

The credit growth in November is the lowest since 2008 at least. Bangladesh Bank's data goes as far back as 2008.

There is little ray of hope for the credit growth to increase in the next three to four months given the ongoing dull credit demand from businesses, said analysts.

Credit growth had increased to some extent in the first three months of the ongoing fiscal year riding on the implementation of the stimulus packages.

But the credit growth has started to face a steep descent since September.

The decreasing trend in credit growth is an indication of massive fall in consumption, which is alarming for the economic recovery beyond a doubt, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

The credit growth would have decreased heavily had the central bank not offered the ongoing moratorium facility, he said.

This means banks now include the interest, which is yet to be realized, to the principal credit amount taken by clients.

The central bank has asked banks not to classify the loans taken by clients in case of failure of paying the instalments of loans given the ongoing economic hardship.

Clients have been enjoying the moratorium for this entire year.

The upward trend of excess liquidity in the banking sector is a sign of lower credit demand, said Md Arfan Ali, managing director of Bank Asia.

As of September this year, excess liquidity in banks stood at Tk 169,650 crore in contrast to Tk 81,088 crore a year ago.

Credit demand from private sector may shrink more in the days ahead in the wake of the second wave of the coronavirus, Ali said.

"It will take at least first quarter of the next year to pick up the growth. But, availability of the vaccine for the Covid-19 is highly important to make the private sector vibrant," he said.

Emranul Huq, managing director of Dhaka Bank, also echoed the same saying that imports have declined alarmingly in recent period, hitting the credit growth as well.

Imports of non-essential goods specially the lifestyle products has almost come to a halt due to the economic hardship while capital machinery and industrial raw materials have also gone down, he said.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said that the ongoing business slowdown may worsen further unless the vaccine is not available in the first quarter of the next year.

The outstanding loans in the private sector stood at Tk 1,120,902 crore as of November in contrast to Tk 1,114,322 crore the previous month.