Private sector credit growth dropped to an 18-month low of 15.87 percent in July, as banks have adopted a “go slow” policy for loan disbursement to comply with the central bank's newly set loan-deposit ratio.
This growth was 1 percentage point less than the central bank's target of 16.8 percent for the first half of the current fiscal year.
In February last year, private sector credit growth hit 15.61 percent, which continued to rise till November when the growth reached 19.06 percent.
But the credit growth started falling from December last year to July this year, according to data from Bangladesh Bank.
In continuation of the declining trend, the credit growth dropped sharply in the last three months, from 17.60 percent in May to 16.94 percent in June.
The central bank's decision to slash the loan-deposit ratio by 1.5 percentage points to 83.5 percent was one of the main reasons for the declining credit growth, bankers and experts told The Daily Star.
The central bank took the decision on January 30 and instructed banks to implement the new ratio by March next year.
Many banks have adopted the “go-slow” policy at the turn of the year, when their loan-deposit ratios were way higher than the central bank's permissible ceiling, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a platform of private banks' managing directors.
Some banks have already adjusted their loan-deposit ratio through their cautious approach to disbursing loans, said Rahman, also the managing director of Dhaka Bank. The decision taken by banks to bring down the lending rate to a single digit has also put an impact on the credit growth, he said.
On June 21, the Bangladesh Association of Banks, a forum of directors 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 also lending cautiously keeping in mind the upcoming national polls, which is scheduled to be held in December this year, Rahman added.
Shafiqul Alam, managing director of Jamuna Bank, also echoed Rahman's view. He said a majority of the banks disbursed loans at a slow pace to adjust their respective loan-deposit ratio.
A number of banks have been facing a liquidity crunch in recent months which has forced them to lower lending, said Ahsan H Mansur, executive director of Policy Research Institute.
The deposit growth in the banking sector is hovering at 10 percent for long which weakened the banks' lending capability, he said. “The banks have been facing a crisis in adjusting their loan-deposit ratio, that clearly indicates a liquidity crisis in the banking sector,” he said.
Higher yield of national savings certificates than rates offered by the banks for their deposit products is one the causes of the liquidity crisis, Mansur said.
The negative net foreign asset of balance of payments is also responsible for the cash shortage in banks, he added.