Private sector credit growth, which remained sluggish over the last two years, has tumbled once again in January after a little recovery for a while just in the previous month.
This is due to the ongoing political turmoil, bankers said.
The credit growth to private sector came back to 13.3% in the first month of 2015 from 13.5% in December last year, according to latest data of Bangladesh Bank.
The credit growth in December last year was close to the ceiling of 14% set in the monetary programme for the first half of the current fiscal year (July-December).
It was possible just because of the growing credit demand in the first half of the current fiscal year (2014-15) soon after the return of normalcy in the political situation.
The credit growth that achieved in January was far below from the ceiling of 15.2% set in the monetary program due to lack of credit demand in the banking sector since the country again plunged into a fresh spell of political violence from January 6.
The amount of the total credit to private sector stood at Tk5,41,900 crore in January.
On the other hand, banks cut their lending rate rapidly in January to boost the credit demand. The weighted average lending rate came down to 12.32% in January, which was four years’ below from 11.34% in 2010.
“Banks have cut the lending rate from an idea of massive investment from the surplus money that has created a burden for them,” said NCC Bank Managing Director Hafiz Ahmed.
He said banks were investing their surplus money in government treasury bonds and call money markets, from which, they were getting interest at 7% to 8% only.
“If the banks could lend money even at 11% or 12%, which is now existing, would have been more profitable to them,” he observed.
“Under the circumstance, we all want highest use of our money,” he said.
“The lower lending rate is not significant compared to the inflation,” said Bangladesh Bank Chief Economist Biru Paksha Paul.
“Lending rates may go up and down based on inflation, which must be less than the lending rate to make the real interest rate (the lending rate minus inflation) a positive one,” he added.
A real interest rate of 3% or so is desirable in developing economies where real interest rates is higher than 3% will simply hinder the investment growth, he opined.
“Now inflation has come down and the lending rate should be close to 10%,” he observed.
Banking sector 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.
Bangladesh Bank, however, recently claimed through a statement that only Tk3,364 crore remained idle in the banking sector.
The surplus money that incurred after maintaining the statutory requirement remained invested in the government bills, which is profitable for banks, observed the central bank.
The Advance Deposit Ratio (ADR) in the banking sector remained almost same at 71.20% in January this year compared to 71.30% in the same period of the last year, according to the Bangladesh Bank data.
The credit growth of the four state-owned banks, though, improved significantly to 9% in January compared to the negative growth of 4.59% in the same period of last year.
