Private credit growth hits 58-month high in August

Private sector credit growth hit a 58-month high in August -- 17.84 percent -- as banks are earnestly focusing on disbursement of consumer, SME and farm loans to sustain their profitability.

The last time the private sector credit growth was as high was back in November 2012, when 17.40 percent was registered.

This was the third month in a row that the private sector credit growth registered an increase.

In the monetary policy for the first half of the fiscal year, the Bangladesh Bank set the private sector credit growth target at 16.20 percent.

The large import bills in the first two months of the fiscal year had also played a role in increasing the credit growth, according to bankers.

Some businesspeople have started to import industrial raw materials and capital machineries to set up large infrastructures that ultimately had a positive impact on the private sector credit growth, they said. 

Letters of settlement shot up 31.55 percent to $9.41 billion in the first two months of fiscal 2017-18 from a year earlier, according to data from the BB.

Some banks have recently started to finance to set up the large infrastructural projects, particularly in the energy sector, which made the credit growth vibrant, said Ahmed Kamal Khan, managing director of Prime Bank.

“My bank's foreign exchange business has been maintaining a positive trend in recent months, which is ultimately boosting the private sector.”

The majority of the banks have been focusing on their retail banking to sustain their profitability, said Kazi Masihur Rahman, managing director of Mercantile Bank.

The corporate groups are now reluctant to take large loans from banks, which have prompted the diversion to consumer, SME and farm loans, he said.

An increased import financing is another cause of the higher credit growth in recent months, according to him.

The banks set the interest rate between 8 percent and 11 percent for their consumer credit loans like personal loans, which tempted customers.

At the end of August, total outstanding loans in the private sector stood at Tk 7.92 lakh crore in contrast to Tk 6.72 lakh crore a year earlier.

Dhaka Bank Managing Director Syed Mahbubur Rahman, however, underscored the need for proper monitoring on the disbursed loans in the recent months.

“I cannot make any comment right now about the quality of the private sector credit growth. We need more time to ascertain whether the disbursed loans will bring any good for the country's financial sector.”

He too said the banks have been disbursing excessive amount of consumer loans, which bumped up the private sector credit growth.

Though the private sector saw a remarkable credit growth, public sector credit growth registered a negative growth of 8.08 percent in August.