In the first eight months of the 2024–25 fiscal year, private sector bank lending in Bangladesh has experienced severe stagnation.
According to the latest data from Bangladesh Bank, loan growth during this period was only 2.63%, nearly half of the 5.53% growth in the same period last year, and the lowest in the past 21 years.
As of the end of June 2024, total private sector loans stood at Tk16.41 trillion ($149.49 billion), increasing slightly to Tk16.84 trillion ($153.36 billion) by February. Experts say political uncertainty and a weak investment environment have negatively impacted loan disbursements. Without stability, entrepreneurs lose interest in making new investments.
According to economists, this marginal increase does not reflect actual loan disbursement but rather results from rising interest rates and the addition of suspended interest.
High interest rates have increased business costs, with small and medium enterprises (SMEs) being hit the hardest.
Dr Selim Raihan, executive director of SANEM, said: “High interest rates are discouraging investment, increasing the risk of non-performing loans, and slowing down growth.” In his view, although a tight monetary policy has failed to control inflation, it has exacerbated the crisis in the private sector.
Banks turning to government bonds
In this situation, banks are leaning toward safer and more profitable options—government treasury bills and bonds—with interest rates ranging from 11 to 13%. As a result, banks have become less interested in lending to the private sector.
Political uncertainty and a weak investment climate continue to adversely affect loan disbursement.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said: “Without stability, entrepreneurs lose interest in new investments. Instead, their main goal becomes sustaining existing businesses.”
Plunge in imports, disrupted production
According to Bangladesh Bank, total imports during July–February of FY2024–25 increased by 5.33%.
However, imports of capital machinery dropped by 26.02% during the same period. The same trend applies to raw materials and intermediate goods.
Analyzing LC (Letter of Credit) opening data through March reveals that LCs for petroleum, intermediate goods and machinery have declined by 3.83%, 1.61% and 26%, respectively.
Experts warn that this contraction signals a severe threat to industrial production. Due to shortages of machinery and raw materials, many factories are operating below capacity, and some have even shut down.
Collapse in loan flow, investment stagnant
As of the end of February this year, total loan growth in the banking sector was only 6.82%—the lowest since 2004.
Entrepreneurs are refraining from making new investments due to interest rates ranging from 9 to 16% and market uncertainty. Maintaining existing businesses has become increasingly challenging.
When asked about the issue, Anwar-ul-Alam Chowdhury Parvez, president of the Bangladesh Chamber of Industries, said: “Unless law and order improves, energy shortages are resolved, and interest rates become tolerable, industrialization will collapse.”
Political uncertainty and foreign investment
Following the political change of August 5, 2024, political stability has yet to be ensured.
Regarding the issue, Masrur Reaz, chairman of Policy Exchange Bangladesh, said: “Due to uncertainty about when a democratic government will be formed, both domestic and foreign investors remain largely inactive.”
Zaved Akhtar, president of the Foreign Investors’ Chamber, believes that without reforms in the customs and taxation systems and improvements in the business environment, foreign investment will not increase.
Negative trends in employment and GDP
According to data from the Bangladesh Bureau of Statistics (BBS), the number of unemployed people rose to 2.66 million in the third quarter of 2024—an increase of 170,000 in one year. Meanwhile, labour force participation declined by 1.95 million during the same period.
GDP growth is also showing a negative trend. In FY2023–24, growth stood at only 4.22%, which is even lower than the government's own forecast.
At the same time, the revenue deficit has widened. In the first nine months of the current fiscal year, the revenue shortfall stood at Tk656.65 billion ($5.98 billion).
Lowest export earnings in 10 months in April—blow to garment sector
Meanwhile, export earnings took a major hit in April. In addition to overall slowdowns in apparel exports, the woven garment segment experienced negative growth.
According to the Export Promotion Bureau (EPB), April’s total export earnings stood at $3.01 billion, the lowest in the current fiscal year. Compared to March, exports dropped by around $1.24 billion.
Total export earnings from the readymade garment sector in the first 10 months amounted to $32.64 billion, showing 10% growth. However, April’s earnings were $2.39 billion—only 0.44% higher than the same month last year.
Woven garment exports in April dropped by 4.65%, although knitwear exports increased by 5.08%.
Regarding the issue, the former BGMEA director and managing director of Bangladesh Apparel Exchange, Mohiuddin Rubel, said: “Despite positive growth throughout the fiscal year, April’s performance serves as a wake-up call. To remain competitive in the export market, we must ensure continuity in our supply chain and production capacity.”
Overall exports, however, stood at $40.20 billion during the July–April period of FY25, reflecting a 9.83% year-on-year growth.
What needs to be done now
According to experts, the following areas must be prioritized to overcome this multidimensional crisis:
Political stability must be established and an investment-friendly environment created.
The banking sector must be reformed and interest rates brought to a reasonable level.
Tax and customs systems should be digitized and simplified.
Additionally, ensuring energy security, offering investment incentives and providing accessible loan facilities must be implemented swiftly. The sooner these measures are realized, the faster the industrial sector will recover and the macroeconomy will regain a stable momentum.
