Private sector credit growth in Bangladesh slowed to 6.95 per cent in May 2025, down from 7.5 per cent in April, reflecting weakening business confidence and tighter lending conditions, according to Bangladesh Bank data.
The decline marks a continued downward trend, despite a brief recovery in March, which was driven by Ramadan-related economic activity.
Since July 2024, when credit growth stood at 10.13 per cent, the figure steadily fell to 6.82 per cent in February 2025. It rose slightly to 7.57 per cent in March, but resumed its decline in the following two months.
Economists said that such sluggish credit expansion could undermine industrial growth, deter fresh investment, and reduce job creation.
They attributed the slowdown to several compounding factors. These include the surge in non-performing loans (NPLs), increased regulatory scrutiny, a cautious business environment, political uncertainty, and the withdrawal or downsizing of businesses once aligned with the ousted Awami League regime.
The banking sector鈥檚 capacity to lend has been further strained by deteriorating balance sheets and a growing number of loan defaults.
Bangladesh Bank鈥檚 February 2025 monetary policy statement set a private sector credit growth target of 9.8 per cent through July 2025.
However, actual growth remains well below that mark. The central bank acknowledged that the credit slowdown is not solely due to higher policy rates, but also results from slow deposit growth and increased government borrowing from commercial banks鈥攂oth of which are limiting private sector access to funds.
In a bid to control inflation and stabilize the macroeconomy, the central bank raised the policy rate to 10 per cent. This move pushed commercial lending rates close to 15 per cent, making borrowing unaffordable for many businesses, especially SMEs.
Additionally, banks are grappling with massive NPL burdens and provision shortfalls, severely limiting their capacity to extend new credit.
Bangladesh Bank data shows that total NPLs nearly doubled in a year, reaching Tk 4.2 lakh crore in March 2025, up from Tk 1.82 lakh crore in March 2024.
Therefore, 17 banks reported a combined provision shortfall of Tk 1,77,650 crore at the end of March. Of these banks, six banks faced such deficits for the first time, signaling deepening distress in the sector.
Another 20 banks reported zero shortfall or surplus, but that was largely due to regulatory deferral facilities rather than genuine financial strength.
Experts said that the explosion in NPLs reflects years of unchecked irregularities, political interference, and regulatory failures under the AL-led government.
After the political changeover on August 5, 2024, the central bank began disclosing the true financial health of banks, exposing the scale of the crisis that had been long concealed. Politically connected borrowers, previously shielded from enforcement, are now facing tighter scrutiny, they said.
