In September, private sector credit growth in Bangladesh hit a 23-month low due to factors such as a liquidity shortage, reduced lending capacity by banks, and ongoing economic challenges.
According to data from the Bangladesh Bank, private sector credit growth fell to 9.69% in September, down from 9.75% in August. This marked the lowest growth rate since October 2021 when it was 9.44%.
The total loans disbursed to the private sector by banks stood at Tk15.13 lakh crore by the end of September. The decline in credit growth is primarily attributed to a liquidity shortage within the country's banking sector, which has been exacerbated by factors such as increased dollar sales by the central bank, slow deposit growth, a rise in non-performing loans, and increased cash withdrawals by clients following bank loan scandals.
Many banks have been facing a cash crisis and have sought assistance from the central bank and larger banks to meet their daily cash needs.
According to central bank data, excess cash liquidity in banks decreased from Tk11,629 crore in June to Tk7,821 crore in August. The distressed assets in the country's banking sector reached Tk3,77,922 crore by the end of December 2022.
Rescheduled loans in the banking sector surged to Tk2,12,780 crore, while defaulted loans amounted to Tk1,20,656 crore, and written-off loans stood at Tk44,493 crore as of December 2022. Additionally, the value of defaulted loans caught up in legal proceedings increased to Tk2,07,361 crore, and non-performing loans reached Tk1,31,620 crore as of March 2023.
Various challenges, such as high inflation, foreign exchange rate fluctuations, a shortage of US dollars, and an energy crisis, have hampered business activities. Economic uncertainties have led businesses to be cautious in seeking bank loans.
The government and the Bangladesh Bank have imposed stricter monitoring and import restrictions, which have limited business operations and reduced the demand for credit. Poor deposit growth and a surge in non-performing loans have made it challenging for banks to disburse loans.
To address the dollar shortage in the financial sector, the Bangladesh Bank sold approximately $25 billion to banks over the past 27 months, leading to a significant increase in the exchange rate from Tk90 to Tk110.5 against the US dollar within a year.
Private sector credit growth was 8.35% in FY 2020-21, 13.66% in FY 2021-22, and 10.57% in FY 2022-23.