Deepening uncertainty downing credit growth

Private sector credit growth dropped heavily in October due to the eroding confidence of businesses amid the potential threat of a second wave of coronavirus infections.

The year-on-year credit growth stood at 8.61 per cent in October, down 9.48 per cent from a month earlier, according to data from Bangladesh Bank.

Credit growth had increased substantially in the first three months of the ongoing fiscal year riding on the implementation of the stimulus packages, bankers said.

The quick implementation of the stimulus package for large industries and service sectors had a positive impact on credit growth, they added.

The government declared a stimulus package worth Tk 30,000 crore for the sectors. The fund size was later expanded to Tk 40,000 crore.

As of October 30, banks disbursed Tk 22,900 crore from the stimulus package for large borrowers.

A majority of the amount was given out before October, a central bank official said. However, the implementation process of the stimulus packages for other sectors is yet to gain momentum, he added.

A good number of borrowers took loans soon after the government lifted lockdown measures in the last week of May, according to Md Arfan Ali, managing director of Bank Asia.

Businesses have adopted a cautious policy once again, given the rising Covid-19 infections.

Besides, demand has also gone down as people are now highly careful about purchasing anything amid all the economic uncertainty, Ali said.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, echoed the same, saying that credit demand is on the decline.

Banks now face excess liquidity due to the collapse in credit demand, Rahman added.

The excess liquidity in the banking sector stood at Tk 160,979 crore as of August, up 105 per cent year-on-year.

The import of capital machinery and industrial raw materials went down alarmingly in recent months, signalling a sluggish investment scenario, Rahman said.

Settlement of letters of credit (LCs), generally known as import payments, for capital machinery declined 39 per cent year-on-year to $822 million in the first quarter of the ongoing fiscal year.

LC settlement for industrial raw materials declined 7.32 per cent to $4.32 billion.

"The credit growth will pick up heavily once Covid-19 vaccines are available," Rahman added.

The managing director also predicted that the ongoing sluggishness would continue until next March.

The outstanding loans in the private sector stood at Tk 11,14,322 crore as of October in contrast to Tk 11,13,082 crore the previous month.