The credit growth in the banking sector of Bangladesh will get momentum following the interest rate hike by the US Federal Reserve Bank as the foreign loan will be expensive for local entrepreneurs, analysts say.
The US central bank increased the range of its benchmark interest rate to between 0.25% and 0.5% on December 16 from the previous range of 0%-0.25%
Bangladesh will have the edge on the US rate rise as the move will facilitate surging local credit growth which is going through a slower pace over the last couple of years, said Allah Malik Kazemi, change management adviser to Bangladesh Bank.
“We will not have negative impact of increased Fed rate as Bangladesh is not burdened with foreign loan,” he said.
He said the cost of foreign loan will rise for local borrowers who approached foreign sources. The surge in US rate will discourage local investors from taking foreign loan, thus bring them back to local resources.
As a result the pressure of excess liquidity will reduce, said the senior economist.
According to the Bangladesh Bank data, a total of $8bn foreign loans have been approved so far.
The figure is not still significant, but now the central bank may think of limiting foreign loan inflow to avoid risk, said Kazemi.
The US central bank raised the benchmark of interest rate at the time when Bangladesh is trying to push down the lending rate to a single digit.
Trust Bank Managing Director Ishtiaque Ahmed Chowdhury said the lending rate in Bangladesh will come to a single digit next year which will attract local investors amid the rising US rate.
He said many investors are still trying to get foreign loan and the increased interest rate by Fed will now bring them back to local credit.
The average lending rate came down to 11.35% in October this year from 12.49% in the same period last year, according to the Bangladesh Bank data.
“We were expecting cut in the interest rate more than the Fed did,” Golam Hafiz Ahmed, managing director of NCC Bank, said, adding that local credit will be popular among investors with a gradual rise in the US rate.
The excess liquidity of the banking sector stood at Tk1,22,000 crore in October, of which Tk2,600 crore remained idle.
The private sector credit growth was also hovering between 12% and 13% over the past two years. The credit deposit ratio was 69% as of September which was very poor compared to allowed limit of 80%.