Private sector credit growth continued its downward course in May after many banks sincerely adopted a 'go slow' policy in disbursing fresh loans.
In May, private sector credit growth stood at 17.60 percent, down from 17.65 percent registered a month earlier but still higher than the central bank's target of 16.30 percent set for the second half of fiscal year 2017-18.
Analysts said the growth would come down further in the coming months as banks would disburse loans cautiously ahead of the national election, which is scheduled for the year-end.
The credit growth is likely to be stagnant in the near future because of the decision taken by banks to bring down the lending rate to a single digit, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a platform of the managing directors of private banks.
On June 21, the Bangladesh Association of Banks, a forum of sponsors of private banks, decided to lower the interest rates on lending and deposit to 9 percent and 6 percent respectively from July 1.
“Banks are now observing the trend of their deposit mobilisation. They may take the decision to disburse loan considering their liquidity position,” said Rahman, also the managing director of Dhaka Bank.
Banks earlier took on an aggressive lending approach, forcing the central bank to lower the loan-deposit ratio ceiling to 83.5 percent from 85 percent from March next year.
Banks are tightening credit activities to bring down their loan-deposit ratio as per the central bank's directive, said MA Halim Chowdhury, managing director of Pubali Bank.
“The deposit growth of banks is now lower than the credit growth. So, they are sanctioning loans cautiously, which is having an impact on growth,” he said.
Banks are also trying to avoid the mismatching of tenure between credit and deposit, according to Chowdhury.
As many as 22 banks are still maintaining a higher loan-deposit ratio beyond the permissible limit set by the central bank, said a Bangladesh Bank official.
“So, the banks are now making an all-out effort to adjust their loan-deposit ratio. The initiative indicates that private sector credit growth will not see a pick-up soon,” he added.
Credit growth is still higher than the central bank's target, so it will not be appropriate to say that growth plunged into a negative zone, said AB Mirza Azizul Islam, a former caretaker government adviser.
He, however, said banks usually adopt a 'go-slow' policy ahead of the national elections.
Private investment-to-GDP ratio has been facing a sluggish trend for a long time even after large amounts of loan were disbursed by banks, Islam said.
At the end of May, the total outstanding private sector credit stood at Tk 8.92 lakh crore.