It is still 6.4 percentage points off the central bank's target for fiscal 2020-21
December’s data for private sector credit growth, one of the barometers of economic activity, was most definitely a mirage of green shoots.
It edged up 16 basis points last month to 8.37 per cent, according to data from the Bangladesh Bank. The central bank’s private sector credit growth target for fiscal 2020-21 is 14.8 per cent.
“The demand for credit is still down,” said Emranul Huq, managing director of Dhaka Bank.
Generally, banks calculate the interest on loans as credit and the amount is attached with the original loan at the end of the year.
“This is the reason for the rise in credit growth. Businesses are still waiting on their expansion plans and investment decisions,” he added.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, echoed the same.
“The actual credit growth has not increased as the businesses havenot fully recovered yet,” he added.
Huq, however, is hopeful the demand for loans will pick up in the coming days as people are venturing outside of the homes and their livelihoods have returned to a semblance of normalcy.
The demand for credit will increase in the March-June quarter centring on Pohela Boishakh, the Bengali new year, and Eid-ul-Fitr, the two biggest festivals in Bangladesh, Huq added.
Between February and June, private sector credit growth consistently dropped when the global coronavirus pandemic was in its ominous form.
From 9.2 per cent in January it came down to 8.6 per cent in June as the lenders refrained from disbursing credit during the countrywide shutdown from March 26 to May 30.
Loan disbursement by banks was halted amid the shutdown period, which was the reason for the slow credit growth, said Rahman, also the former chairman of the Association of Bankers, Bangladesh (ABB), a forum of private banks’ managing directors.
However, the private sector credit growth has picked up slightly from July to September due to stimulus packages implementation by banks, he added.
The entrepreneurs and industries did not go for business expansion for want of confidence, said Asif Ibrahim, a former president of the Dhaka Chamber of Commerce and Industry, the largest SME trade body of Bangladesh.
“The deadly virus is very much alive and kicking. It is very tough to make fresh investment and business expansion decisions when the world is witnessing a fresh wave of coronavirus cases.”
The demand for credit from the private sector will increase once the pandemic has been doused once and for all, he added.
The dismal demand for credit by businesses and the central bank expansionary monetary policy helped to raise excess liquidity in the banking sector.
At the end of December last year, the excess liquidity in the banking sector stood at Tk 204,700 crore, which is the highest in recent times, as per the central bank’s latest data.
The surge in remittance inflow and the falling trend of import were the other reasons for the gush of excess liquidity in the banking sector.