Private credit growth highest in four years
Banks' lending to private borrowers grew a robust 16.56 percent last fiscal year, according to central bank data released yesterday.
The growth rate was the highest in four years and well above the target of 14.8 percent set in the monetary policy, thanks to declining interest rates and rising demand for short-term and consumer loans, according to bankers.
“Big corporate groups are taking short-term loans to expand their operations. Borrowers are cashing in on the lower interest rates,” said Anis A Khan, managing director of Mutual Trust Bank and chairman of the Association of Bankers Bangladesh.
Loans are now being given to diversified sectors, such as small and medium enterprises, consumer, personal, garment and textile, said Khan, hoping that if the trend sustains, credit growth will improve in the coming months.
Credit to the private sector stood at Tk 669,740 crore at the end of June, in contrast to Tk 574,599 crore in the same month last year, data from Bangladesh Bank shows.
Private sector credit growth remained subdued for three years since 2012-13, when it went down to 11.04 percent because of a volatile political situation that had forced the private sector to shelve their investment plans.
Accordingly, private sector credit went down to 13.19 percent and 12.27 percent in 2014-15 and 2013-14 respectively. Before that, it was 19.72 percent in 2011-12 and over 25 percent in the preceding year.
High interest rates in the local market had also compelled many entrepreneurs to take low-cost foreign currency loans, which brought down loan disbursement by local lenders, according to bankers.
These issues pushed the weighted average lending rate down to 10.5 percent in May, compared to over 12 percent a year earlier.
The deposit rate also saw a sharp fall as banks are still awash with excess liquidity. The interest rate on deposits came down to 5.67 percent in May from 7.2 percent a year earlier.
“We are seeing higher demand for loans from diversified sectors, such as SMEs, trading, power plants, transport, steel, garments and textiles in recent months,” said Abdul Halim Chowdhury, managing director of Pubali Bank.
The apparel sector is taking loans to import new and modern machinery from Europe to comply with the standards set by the Accord and the Alliance, two global forums of buyers for ensuring safety in the sector, said Chowdhury.
Rising off-shore loans (foreign currency loans) are also pushing credit growth up, he said.
Banks are not running after big corporate groups in Dhaka and Chittagong for giving loans anymore, he added.
BB data on the import of capital machinery also supports Chowdhury's analysis. Opening and settlement of letters of credit (LC) for imports grew by over 10 percent and 14 percent respectively in 2015-16. The import of industrial raw materials grew 4 percent in the year.
The overall import in 2015-16 stood at $42.9 billion (C&F), which was 5.45 percent higher than the previous year, according to the central bank.