Staff Reporter :
The flow of formal credit to the private sector has experienced a significant decline over the past six months, reaching its lowest growth rate in a decade at just 7.15 per cent in January this year.
This downturn is attributed to high interest rates, reduced lending capacity among banks, and a contraction in import trade.
The central bank has been tracking private sector credit growth since January 2015, and the latest figures indicate that such a low growth rate has not been recorded in the past ten years.
The growth rate for January fell short of the central bank’s target of 9.80 per cent for the second half of the current fiscal year 2024-25 by 2.65 per centage points.
For context, the growth rates were 7.28 per cent in December, 7.66 per cent in November, 8.3 per cent in October, 9.2 per cent in September, 9.86 per cent in August, 10.13 per cent in July, and 9.84 per cent in June.
Since the fall of the Awami League government in August last year, the country has been grappling with political instability and disruptions to law and order.
Bank officials have attributed the slowdown in credit growth to a stagnant business environment, ongoing political unrest, and ineffective law enforcement.
As a result, businesses have adopted a cautious ‘wait-and-see’ approach, delaying new investments.
Despite the establishment of an interim government following Sheikh Hasina’s ousting on August 5 due to a mass uprising, the business climate has shown little sign of improvement.
High inflation, soaring lending rates, and poor loan recovery have further hindered credit expansion. Private sector credit growth has been on a downward trend since November 2022, with a recorded rate of 7.3 per cent in December 2024, according to the Monetary Policy Statement released on February 10.
This slowdown is not solely a result of policy rate hikes; it is also influenced by several factors, including slower deposit growth and increased government borrowing from commercial banks, which has crowded out private sector credit.
Deposit growth has plummeted to 7.4 per cent in December 2024, down from 14.3 per cent in March 2021, significantly contributing to the overall slowdown in credit expansion. The central bank’s contractionary monetary policy, which includes a policy rate hike to 10 per cent, has driven borrowing costs to nearly 15 per cent, rendering loans prohibitively expensive for many businesses.
Additionally, outstanding loans in the private sector decreased to Tk 16,801.10 billion in January 2025, down from Tk 16,852.71 billion the previous month. This figure represents an increase from Tk 15,679.43 billion in January 2024.
