Staff Reporter :
The flow of formal credit to the private sector continues its downward trend, with growth falling to a record low of 8.30 per cent year-on-year in October this year.
This decline is attributed to high interest rates, reduced lending capacity by banks, and a contraction in import trade.
Credit growth also dropped to 9.2 per cent in September, down from 9.86 per cent in August and 10.13 per cent in July, according to data from Bangladesh Bank.
In response, the central bank has revised the private sector credit growth target for the first half (H1) of the 2024-25 fiscal year, lowering it from 10 per cent to reduce the credit flow and curb inflation.
Private sector credit growth was 8.35 per cent in FY 2020-21, 13.66 per cent in FY 2021-22, and 10.57 per cent in FY 2022-23. It hovered around the 9 per cent mark in FY24.
Bank officials attribute the decline to a stagnant business environment, worsened by political instability and widespread disruptions across the country.
The liquidity crisis in the banking sector, along with massive loan scandals and irregularities during the Awami League regime, further exacerbated the situation.
Consequently, businesses adopted a “wait-and-see” approach, leading to a reduction in credit demand.
Moreover, persistent inflation, rising lending rates, and poor loan recovery have all contributed to the slowdown in credit growth.
In response, Bangladesh Bank increased the policy rate by 50 basis points to 10 per cent in October 2024 to tackle inflation. This followed a previous hike of 50 basis points to 9.50 per cent on September 24, and another 50-basis-point increase to 9 per cent on August 25.
Additionally, the opening of fresh Letters of Credit (LCs), also known as import orders, dropped by 1.22 per cent to US$22.33 billion in the July-October period of FY 2025, compared to US$22.60 billion in the same period of FY 2024. This decline reflects the impact of recent austerity measures and businesses’ “wait-and-watch” strategy amidst ongoing political unrest.
