Private credit growth falls to nine-year low

Private sector credit growth dropped to a nine-year low of 10.04 percent in October as the majority of banks are unable to give out loans as expected because of the presence of a high volume of defaulted loans.

The growth was 3.16 percentage points lower than the central bank’s target of 13.20 percent for the first half of the current fiscal year.

In September 2010, private sector credit growth stood at 6.09 percent and since then the growth has never fallen below 10 percent.

It hit 15.61 percent in February 2017 and continued the upward trend to rise to 19.06 percent in November. But the credit growth started falling from December 2017 and has kept the downward trend since then, data from the Bangladesh Bank showed.

The banking sector has been facing a liquidity crisis for a few years, putting an adverse impact on the private sector, a central bank official said.

A large amount of funds of banks has been stuck in the form of defaulted loans for long, eroding lenders’ capability to lend to the private sector.

Defaulted loans surged 24 percent to Tk 116,288 crore in September compared to that in December last year. The delinquent loans now account for 11.99 percent of the total outstanding loans in banks, up from 10.30 percent in December 2018. The central bank official went on to express fear that the private sector will face more impediments in the days ahead as the government is in a mad rush to borrow from the banking sector in the face of falling revenues.

As of November 21, government borrowing from the banking sector was 90 percent, Tk 42,607 crore, of its annual limit set in the budget. In contrast, Tk 26,446 crore was borrowed in the entire 2018-2019 fiscal.

Now, the government plans to borrow an additional Tk 4,555 crore in December as its account had around Tk 6,000 crore deficit on November 28.

The private sector will be crowded out if the government continues its borrowing from banks at the current pace, the BB official said, adding that the government should speed up revenue collection in the interest of banks and the private sector.