The private sector credit growth in the country increased slightly in May compared with that in the previous month.
The Bangladesh Bank鈥檚 data showed that the growth increased to 10.35 per cent in May from 9.9 per cent in April, which was 10.49 per cent in March, 9.96 per cent in February, 9.95 per cent in January and 10.2 per cent in December of 2023.
The growth may slightly increase in June due to increased import activities surrounding Eid-Ul-Azha, one of the largest religious festivals of the Muslims which was celebrated on June 17 across the country.
However, the growth remains poor considering country鈥檚 development growth and GDP size. The growth had been hovering around 10 per cent since June 2023.
Bankers said that severe liquidity crisis, widened further by the Bangladesh Bank鈥檚 contractionary monetary policy, was the primary reason behind the lower credit growth.
In addition, the central bank adopted new interest rate policy in July last year, which raised the lending rate to nearly 13 per cent until May.
On May 8, the central bank left determination of the interest rate to the market, which pushed up the lending rate further.
The high lending rate may discourage businesses to borrow from the banking sector.
In addition, the banking sector has been grappling with acute liquidity crisis.
The central bank continued its foreign currency sales, which acted as automatic quantitative tightening measures, significantly absorbing liquidity from the system.
Over the past 36 months, the central bank has sold approximately $34 billion from its reserves to banks.
Moreover, the banking sector鈥檚 loan disbursement capacity also diminished due to high default loans, deposit withdrawals by clients and ongoing economic challenges.
Many banks are now facing cash crises and have sought assistance from the central bank and larger banks to meet their daily cash needs, bankers said.
Responding to this, the central bank lowered the private sector credit growth target to 10 per cent for January-June of the 2023-24 financial year, down from the previous target of 11 per cent.
This adjustment reflected concerns over reduced interest from private sector investors, driven by higher borrowing costs, ongoing global and domestic economic uncertainties, liquidity constraints within the banking sector and the implementation of a contractionary monetary policy.
Economic challenges such as high inflation, foreign exchange volatility, dollar shortage and an energy crisis have further dampened business activities, making businesses hesitant to seek bank loans.
The government and the Bangladesh Bank have also tightened monitoring and imposed restrictions on imports, which have curtailed business operations and reduced the demand for credit.
The exchange rate reached Tk 118 from Tk 93 against the US dollar within a year.
