Private sector credit growth slips, resulting in business slowdown

The private sector credit growth in Bangladesh has dropped to a 14-month low of 11.23 per cent in April. This decline is attributed to weak credit demand resulting from the current business slowdown. It marks the fifth consecutive monthly decline as businesses adopt a “wait and see” approach due to ongoing uncertainty domestically and internationally. Data from the Bangladesh Bank reveals that banks’ finance to the private sector amounted to Tk 14,57,400 crore in April. 

Experts have expressed concerns that private sector credit growth may further decline in the future due to a decrease in deposit growth. Deposit growth slowed in the third and fourth quarters of 2022 compared to the second quarter. Overall, deposit growth reached 5 per cent by the end of 2022, significantly lower than the 9.6 per cent recorded a year earlier. As of December, deposits totaled Tk 15,88,010 crore in the banking system. The experts argue that unless the interest rate cap on loans is lifted, deposit growth will not recover.
Several businesses are encountering difficulties in opening Letters of Credit (LCs) to establish new industrial units, expand existing ones, or purchase inputs. This situation has had a negative impact on credit growth. Additionally, inadequate electricity and gas supply have contributed to the downward trend in credit growth.

Shariah-based banks are facing a liquidity crisis, making it challenging for them to disburse funds. This crisis arose when depositors withdrew funds or refrained from making new savings following loan scams at certain Shariah-compliant lenders, leading to a depletion of their liquidity base. Some Islamic banks are currently obtaining funds from the central bank to sustain their day-to-day banking operations. However, the situation contrasts with that of three to four years ago when these banks used to provide funds to financially strained lenders.
Furthermore, businesses are cautious about making investments due to concerns that the political environment may deteriorate ahead of the general elections scheduled for early next year. Consequently, the credit growth is not expected to turn around immediately. If the slowdown in credit growth persists, it will adversely affect the GDP growth, which has already been impacted by decreased demand both domestically and internationally due to persistently high inflation.