Credit growth slows in political jitters

High bank interest rates and investors' lack of confidence have continued to hurt private sector credit growth for several months now.
Private sector credit growth dropped by 6.32 percentage points to 12.68 percent year-on-year in April, the lowest since fiscal 2009-10, data from Bangladesh Bank shows.
It was 12.72 percent in March and 13.96 percent in February. The credit growth figure for April was significantly lower than the target set by the central bank in its monetary policy stance for January-June 2013.
“It is true that confidence in the business community has eroded in recent months, especially after violent political activities, including hartals,” Kazi Akram Uddin Ahmed, president of Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), told The Daily Star.
Ahmed said a high bank interest rate -- 16 percent to 17 percent -- is also a big barrier to restoring confidence in business community.
“Things won't improve overnight.”
Bangladesh is passing a volatile time for the upcoming national elections. The situation has impacted the private sector -- from banks and industries to small businesses.
Political turmoil has not only caused a slump in private sector credit growth but also affected the banks' loan-deposit ratio. The overall loan-deposit ratio in the banking sector declined to 74.9 percent on May 2 from 76.59 percent on December 31, 2012. The ratio was 80.33 percent on June 7, 2012.
The dollar is now trading at Tk 77-78, compared with Tk 86 a year ago, due to poor import demand.
Consequently, banks' excess liquidity (funds available for loans) reached around Tk 70,000 crore in May.
“The business community has taken a wait-and-see stance due to the volatile political conditions,” said a senior central bank official on the present economic situation.
Ahmed, president of the FBCCI, however hoped the situation would improve once the political impasse passed.