Fund crisis in banks: Credit growth to private sectors slides steadily
Staff Reporter :
Credit growth in the country’s private sectors is steadily falling down due to decline in investment demand and loanable fund crisis in the banks.
The growth declined to 10.5 per cent in June from 11.1 per cent was at the end of May this year, according to the Bangladesh Bank data.
The credit growth in private sectors was 13.6 per cent at the end of the June last year, the data showed.
The data also showed that the deposit growth in the banking sector dropped to 8.40 per cent in June 2023 year-on-year, from 8.90 per cent.
The private-sector credit flow had been on an upturn since early in the last fiscal year, reaching 13.95 per cent in July and 14.07 per cent in August.
However, it started declining subsequently, recording figures of 13.91 per cent, 13.91 per cent, 13.97 per cent, 12.89 per cent, and 12.62 per cent in September, October, November, December, and January, respectively.
The growth further plummeted in the following months, with figures of 12.14 per cent in February, 12.03 per cent in March, 11.28 per cent in April and 11.10 per cent in May, according to the BB data.
BB officials said that various factors contributing to the credit-flow drop, including the central bank’s belt-tightening measures to safeguard foreign exchange reserves and control inflationary pressures.
Trade financing, which constitutes around 40 per cent of the total funds flowing to the private sector, has been notably impacted by the BB’s strict monitoring of import-related banking activities, as evident in the private sector credit growth data, they said.
The private sector players are showing reluctance to undertake new projects or expand their businesses due to the overall economic slowdown to higher inflation and the spillover effects of forex tightening, they added.
Dr Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), said that the primary reason for the downward trend in credit flow to the private sector is the fall in deposit growth.
“Falling deposit is the main reason. The demand for funds by private entrepreneurs is still in place. Banks are discomforting to disburse loans under the challenging period,” he said.
Along with this, the ratio of short-time foreign loans also declined in the private sector significantly during the time due to fall in demand.
The loans from external sector in the country’s private sectors declined to $14.08 billion at the end of May this year from $17.76 billion was in June last year, the BB data showed.
