Where is credit going?

There is a heated debate going on over the banks' credit growth for the past several months. Bangladesh Bank (BB) Governor Dr Salehuddin Ahmed himself said credit flows need to be scrutinised to see where it is going. The issue has also been stressed in the recently announced monetary policy for the July-December period.
Has the business community or investors really gained their confidence back?
Statistics reveal a striking growth in credit figures from the second half of the last fiscal year. The overall credit growth for all banks between June 28, 2008 and June 26, 2008 was 20 percent, against a 16 percent growth in deposits.
Loans and advances of all 48 banks stood at Tk 159,680 crore in June 2007. In a year's time, loan amounts for those banks increased by Tk 31,160 crore and stood at Tk 190,840 crore. Further breakdown of the figures shows that 30 private banks alone accounted for Tk 29,905 crore credit figures, during the period. Foreign banks' credit grew by 26 percent and government-owned specialised banks, by 14 percent.
The one exception was the four state-owned commercial banks. They managed to incur a seven percent de-growth in credit disbursement during the same period.
Private commercial banks (PCBs) were the leaders by far, bagging an amazing 35 percent growth in credit disbursement. BB statistics also show the credit deposit ratio of 27 out of 30 PCBs significantly increased between June 2007 and June 2008. The average credit deposit ratio rose by nine percentage points to 89.15 percent in June 2008 against the BB guideline of 82 percent.
Now let us look at where the credit has gone.
A sector-wise credit analysis of BB for the March 2007 and March 2008 period shows credit for the purchase of apartments increased by 233 percent, communications and transport by 53 percent, credit card by 36 percent, industry by 27 percent, working capital by 25 percent and business by 19 percent.
Retail banking, such as loans for flat purchase, credit card, auto loan etc, is fast growing in the 150 million consumer's nation of Bangladesh.
Standard Chartered Bank and BRAC Bank, the country's two largest consumer banks, have doubled their efforts and product lines to net more consumers.
Standard Chartered Bank's consumer credit stood at Tk 1,679.43 crore at the end of 2007, while BRAC Bank's consumer loan reached about Tk 900 crore in June 2008 from Tk 825 crore in May 2008, according to the banks' sources.
But analyst and bankers said loans are not being channeled to the productive sectors because investors still feel shaky about investing in new ventures, which would create direct employment.
“One can easily get the position of new investment when he will see the employment generation data,” analyst Prof Mahmood Osman Imam of Dhaka University, said. “Employment was too poor compared to the country's economic growth.”
He said there was hardly any significant investment that took place among the new ventures during the past one and a half years. It may have been that it was for the actions against corruption that propelled fear into the businesses, he added.
“Nothing, not even the anti-corruption drive of the present government, is clear,” said Anawr-Ul Alam Chowdhury Parvez, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
The BGMEA president said, “An investor feels shaky because he knows that he may be quizzed for any investment he/she makes from his/her equity.”
Rumee Ali, chairman of BRAC Bank and a former deputy governor of BB, however said: “Investors' confidence is being restored slowly.”
Ali, a pioneer in consumer banking in Bangladesh said: “Investment decision has to be taken on time. You cannot delay too long because it is a question of your survival.”
May be, a businessman did not invest in a big new venture, but he/she has to continue making investments to sustain in the market, Ali added.
“The manufacturing sector is referred to as the productive sector, such as SMEs and agriculture, that creates employment,” Rumee Ali said. “So the credit flows reflected in BB's data doesn't mean productive sectors although these sectors do create some sort of employment,” he continued.
Ignoring the percentage growth in the housing sector, the BRAC Bank chairman said the industry is equity driven, not debt-based like other countries. “Consumers here use their savings to buy a flat or an apartment,” he added.
The credit growth in the purchase of apartments has increased significantly in terms of percentage, may not be in absolute terms though, Prof Osman Imam said. Rumee Ali said BB's refinance scheme has played an important role in boosting the flat purchase credit.
Although housing, credit cards and transport and communications are not productive sectors, these are the complementary areas to the real or productive sectors, Osman Imam said.

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