Private credit growth sinks to 28-year low
Bangladesh's private sector credit growth decelerated to 7.55 per cent in May, the lowest in at least 28 years, due to the depressed demand for loans amid the Covid-19 pandemic.
Banks have also adopted a cautious approach to giving out credit as loans tend to become non-performing given the ongoing business slowdown.
In the last one year, lenders have largely disbursed the stimulus fund introduced by the Bangladesh Bank and hardly lent from their own pockets.
As a result, the private sector credit growth has been on a downward path. It stood at 8.29 per cent in April, way lower than the central bank's target of 14.8 per cent for the just-concluded fiscal year.
"There is no scope for the credit and GDP growth to make a turnaround until the country can rein in the spread of the coronavirus pandemic," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
The credit growth may decline further in the coming months if the government fails to accelerate its vaccination programme, he said.
The outstanding loans in the private sector stood at Tk 11,71,808 crore in May. The amount has expanded by Tk 82,252 crore in the last one year, almost equal to the volume of the stimulus loans disbursed.
"This means banks have given focus to the stimulus packages while disbursing loans," Mansur said.
The government has so far declared 23 stimulus packages involving Tk 128,440 crore, which is 4.59 per cent of the gross domestic product. Of the sum, the BB has set a target to inject around Tk 97,000 crore.
The central bank's initiative to pump the stimulus funds and the lower disbursement of loans by banks have caused the excess liquidity in the banking industry to balloon.
Excess liquidity stood at Tk 211,688 crore in May in contrast to Tk 201,546 crore a month ago, data from the BB showed.
"This has created a new monetary challenge for the central bank as borrowers who have little scope to invest in the productive sector may choose the bubbling zones such as the housing sector and the capital market," Mansur said.
"The central bank should take initiatives immediately to mop up the fund from the financial sector, or else it may create an inflationary pressure."
However, the former economist of the International Monetary Fund suggested the central bank expand its volume of stimulus fund for small and medium enterprises to help the economy recover from the existing sorry state.
Mir Nasir Hossain, a former chairman of the Federation of Bangladesh Chambers of Commerce and Industry, said no new investment was taking place now.
"The service sector is largely subdued while many SMEs lost their capacity to run operations due to the slowdown."
Many small businesses were unable to borrow as banks were reluctant, said Hossain, also a director of Eastern Bank.
Abul Kashem Md Shirin, managing director of Dutch-Bangla Bank, said banks were cautious in disbursing new loans. On the other hand, investors were not interested in setting up new enterprises.
"These two factors have hit the private sector explicitly," said Shirin, adding that the revival of the private sector completely depended on tackling the virus.
Monzur Hossain, research director of the Bangladesh Institute of Development Studies, said business confidence would receive a boost if the spread of the pandemic could be arrested.
The economy might start getting back its growth momentum from December as the government had recently geared up the mass vaccination drive, he said.
"Major economies in Europe and North America have resumed their normal activities, which will help Bangladesh tackle the slowdown."
The banking industry had faced various problems even before the pandemic.
"A number of financial scandals had rattled the banking sector. The slowdown has just deepened their troubles," said Kutubuddin Ahmed, chairman of Envoy Textile, an apparel exporter.
"So, banks are highly cautious in providing new loans."
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