Staff Reporter :
Private sector credit growth in Bangladesh remained subdued in May, rising by only 7.17percent year-on-year, down from 7.57percent in April and significantly below the 10.35percent recorded in May 2023, according to the latest data from Bangladesh Bank.
The slowdown highlights growing investor reluctance amid mounting political uncertainty, tighter monetary policy, and rising interest rates.
This tepid growth follows a brief rebound in April after credit expansion had dipped below 7percent in March, underscoring the volatile and fragile state of private sector borrowing.
Economists attribute this sluggish momentum to a combination of domestic challenges and global headwinds.
One of the clearest indicators of the private sector’s cautious stance is the 27percent year-on-year drop in letters of credit (LCs) for importing capital machinery in the first 10 months (July-April) of FY2024-25, falling to $1.42 billion from $1.94 billion a year ago.
LC settlements, which reflect actual imports, also fell 25percent, pointing to a notable pullback in investment in productive capacity. Similarly, imports of intermediate goods, vital for manufacturing, saw a comparable decline.
“The law and order situation may have improved, but political uncertainty still clouds the investment climate,” said Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank PLC. He cited the ongoing gas supply issues and anxiety over the U.S. tariff changes taking effect on August 1 as major deterrents. “These factors are leaving investor sentiment damp and dull,” he added.
Adding to the challenge, public development spending has slowed, further weakening credit demand, particularly for large infrastructure-related projects.
Ashikur Rahman, Principal Economist at the Policy Research Institute (PRI) of Bangladesh, echoed similar concerns, noting that many investors are adopting a wait-and-see approach until after the next national election.
Meanwhile, the central bank has maintained a contractionary monetary policy stance for nearly two years to rein in inflation.
Although inflation eased to 8.95percent in June, its lowest in nearly three years, borrowing costs remain high. The policy interest rate (repo rate) has been held at 10percent since October 2023, driving up lending rates across the board.
As of April 2024, the weighted average interest rate on bank loans edged up to 12.05percent, while deposit rates rose to 6.23percent, according to BB data. These higher rates have made borrowing more expensive for businesses.
Despite the challenges, there are signs of improvement in lending standards. “What we see now is borrowing by genuine investors, not habitual defaulters,” said PRI’s Rahman.
“Banks are becoming more cautious and prudent in their disbursements, which is a positive shift for financial discipline.”
With election-related uncertainty and monetary tightening still in play, analysts believe that meaningful recovery in private credit growth may remain elusive in the near term.
