Private sector credit growth saw a dramatic fall in April as banks put the brakes on their lending activities to adjust their loan-deposit ratio ceiling as per the central bank’s instruction.
Last month, credit growth stood at 13.6 percent, down 4.33 percentage points from the previous month, according to data from the central bank.
The growth rate was far below the monetary target of 16.3 percent set for the second half of the fiscal year — and a stark contrast to the preceding nine months.
At the end of April, total outstanding private sector credit stood at Tk 8.81 lakh crore.
The steep fall in credit supply to the private sector was due to the banks not having the available funds to give out loans, said Md Arfan Ali, managing director of Bank Asia.
“Though there is still excess liquidity of Tk 80,000 crore in the banking system, most of the private banks are going through fund shortage.”
The rising interest rate for lending also accounts for the slow credit growth, he said, adding that the chances of the rate coming down in the near future are slim.
He went on to state that the supply shortage of credit will affect private sector investment.
The high interest will make entrepreneurs reluctant to take on fresh loans, said Kazi Masihur Rahman, managing director of Mercantile Bank.
Moreover, maintaining the lower loan-deposit ratio will compel private banks to go slow with lending, he said.
In January, Bangladesh Bank instructed banks to bring down their loan-deposit ratio to 83.5 percent by June this year to curb aggressive lending. Later the deadline was extended to March next year.
The interest rate on industrial loans went up to 16 percent in recent months, up 4 percent from last year, according to different banks.
On the other hand, the sharp fall of credit growth gave relief to concerns of exchange rate risk.
The slow credit growth will reduce the import spree, curbing risks of further depreciation of the taka, said a senior BB official.
The inter-bank exchange rate of dollar increased Tk 3.20 this year and stood at Tk 83.70 on May 31, according to data from the central bank.
Import bills bloated 24.50 percent to $40.30 billion in the first nine months of the fiscal year from a year earlier.
Meanwhile, public sector credit growth continues to flit in the negative territory: in April it was 20.63 percent in the negative, way off the central bank target of 8.30 percent set for June.
Source: The Daily Star.