Data analysis reveals that the growth of private sector credit is on a downward trend after having a steady growth from February to August of this year.
This important economic index fell to 13.91% in October from 13.93% in September.
According to economists, the country's production has declined as a result of numerous factors.
In contrast, the private sector's need for credit has decreased as a result of the shrinkage of the investment space brought on by inflation, a shortage of dollars and limits on LC opening.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, says that the private sector credit growth is falling but that doesn't mean credit demand for businesses has declined.
“I think declining people's saving capacity with saving withdrawals from banks have increased to cover rising commodity costs amid high inflation.
“The liquidity position in the banking sector will not improve if the dollar shortage continues. And the businesses have been complaining for the last few months about not getting the necessary dollars and capital for the Latter of Credit (LC) opening and business,” the former IMF official explained.
Recent data from Bangladesh Bank show that $1.7 billion worth of LCs were opened in the first 16 days of November.
Prior to this, importers opened letters of credit worth $24.26 billion from July to October, a 15.1% year-on-year (YoY) decline, showing that the government and Bangladesh Bank's joint efforts are beginning to bear fruit.
According to data from the central bank, LC opening decreased by 38.33% in October alone to $4.74 billion from the same month last year.
“The credit growth of the private sector followed a declining trend because entrepreneurs and businesses did not get essential credit for investment,” said Zahid Hussain, lead economic consultant, World Bank.
Hussain also says that another reason it may be careful in releasing funds amid the ongoing liquidity stress is that banks want to maintain a good balance sheet at the year-end.
However, monthly data shows the total outstanding credits to the private sector have been on a gradual rise since the beginning of the ongoing fiscal year.
It was Tk13.52 lakh crore in July, Tk13.62 lakh crore in August, Tk13.79 lakh crore in September and Tk13.89 lakh crore in October.
According to Bangladesh Bank data, the total domestic loans to the private sector stood at Tk13.89 lakh crore at the end of October, up from Tk13.79 lakh crore a month earlier.
The government's borrowing soared by 32.11% in October compared with that in the same month in the last year.
It stood at Tk3.05 lakh crore at the end of October.
The overall domestic credit flow widened by 16.93% in October after a 16.42% growth in September.
Earlier in August this year, the growth reached 14.07%, hitting nearly the BB monetary policy target of 14.1% for FY23.
For the current fiscal year, which started in July, the central bank has set a target for credit growth of 14.10%; in FY22, this ceiling was 14.80%.
This fiscal year, the central bank has already pumped banks with more than $6 billion to aid businesses in clearing import payments.
The trade deficit increased from $6.77 billion in the same time of the previous financial year to $7.54 billion in the current financial year (2022–23), putting additional strain on foreign exchange reserves.
According to inflation data, while it was 8.91% in October, it was over 9% in August and September, the highest levels since 2010–11, when food inflation reached double digits.