The country’s banking sector has seen rebound in private sector credit growth in February, thanks to negative government borrowing from the banking system and lower lending rate.
The private sector credit growth rose to 13.6% in February from 13.3% in the previous month.
The banking sector saw a fall in credit growth in the first month of the year from 13.5% in last December due to the ongoing political turmoil.
On the other hand, public sector credit posted negative growth of 0.7% in February as the government project implementation remained slower amid political unrest.
A drastic fall in government borrowing from the banking system over the last couple of months is also one of the factors that pushed the private sector credit growth higher, said a senior banker.
Moreover, the banking sector was awash with liquidity due to negative credit demand from public sector, he said.
According to the Bangladesh Bank data, public sector credit growth fell to 2.6% in December last year from 6% in the previous month and later it came down to 1.5% in January this year.
The banking sector is burdened with surplus money of over Tk1 lakh crore after fulfilling the requirement of minimum liquid asset as of December last year, according to the central bank data.
The sale of savings certificates increased rapidly in recent times as the interest rate on the instrument is higher than the deposit rate, said a senior executive of Bangladesh Bank.
As a result, the government has taken loan from this scheme instead of the banking system, he said.
Currently, the interest rate on saving instrument is around 13% while the average deposit rate is around 7%, according to the central bank data.
Finance Minister AMA Muhith recently hinted cuts in the interest rate on savings certificates in the next fiscal year.
The decision will put pressure on the banks to lower the interest rate more as the depositors will turn investment towards the banks from saving instrument, said Allah Malik Kazmi, adviser and former deputy governor of Bangladesh Bank.
The rise in private sector credit growth indicates that the investment situation is not as worse as it is thought to be, he observed.
The lending rate came down to 12.23% in February from 12.32% in the previous month while deposit rate stood at 7.19% from 7.26%, according to the central bank data released recently.
The credit growth of state-owned banks stood at 8.84% in February which was negative 5.32% in the same period last year.
The private banks gained 17.38% credit growth in February from 11.85% in the same month last year.
The overall credit inprivate sector stood at Tk5,45,500 crore while public sector at Tk1,21,500 crore in February.