Private sector credit growth in Bangladesh fell sharply to 7.15 per cent in January, deepening challenges in the banking sector and the broader economy.
According to Bangladesh Bank data, credit growth has been on a steady decline for six consecutive months.
It stood at 7.28 per cent in December, 7.66 per cent in November, 8.3 per cent in October, 9.2 per cent in September, 9.86 per cent in August, 10.13 per cent in July, and 9.84 per cent in June.
Bank officials attributed the slowdown to a stagnant business environment, political unrest, and weak law enforcement.
Businesses have adopted a cautious 鈥榳ait-and-see鈥� approach, holding back on new investments.
Despite the installation of an interim government following Sheikh Hasina鈥檚 ousting on August 5 through a mass uprising, the business climate has shown little improvement.
High inflation, soaring lending rates, and poor loan recovery have further dampened credit expansion.
Private sector credit growth has been declining since November 2022, reaching 7.3 per cent in December 2024, according to the Monetary Policy Statement released on February 10.
The slowdown is not solely due to policy rate hikes but stems from multiple factors, including slower deposit growth and increased government borrowing from commercial banks, which has crowded out private sector credit, it said.
Deposit growth dropped to 7.4 per cent in December 2024 from 14.3 per cent in March 2021, contributing primarily to the slowdown in overall credit expansion, it added.
The central bank鈥檚 contractionary monetary policy, including a policy rate hike to 10 per cent, has pushed borrowing costs to nearly 15 per cent, making loans prohibitively expensive for many businesses.
Additionally, several businesses have shut down due to political instability, legal issues tied to their associations with Sheikh Hasina鈥檚 regime, and what some describe as an unfavorable business environment.
The banking sector鈥檚 ability to extend credit has also been severely impacted by rising defaulted loans, significant deposit withdrawals, and liquidity shortages.
Some banks have sought assistance from the central bank and larger institutions to meet daily cash demands.
Depositor confidence has eroded due to massive loan scandals and irregularities during the Awami League regime.
Economic challenges such as high inflation, foreign exchange volatility, and an ongoing dollar shortage have compounded the crisis.
The exchange rate has surged to Tk 122 per US dollar from Tk 90 in two years, significantly raising import costs.
Businesses have struggled to absorb these expenses, while unpredictable dollar prices have further discouraged imports and investment activities.