After two months of sluggish growth in the country, the private sector credit went up to 13.97% in November.
The growth is very much near the central bank's target of 14.10% for the ongoing 2022-23 fiscal year (FY).
In FY22, this target was 14.80% but the average growth in private sector credit was only 10.67%.
Central bank data analysis shows that the growth surged to 14.07% in August before falling to 13.93% in September and 13.91% in October.
However, in July, the first month of FY23, it was 13.95%.
The total domestic loans to the private sector stood at Tk14.06 lakh crore at the end of November, which was Tk13.89 lakh crore a month earlier.
On the other hand, the government's borrowing soared by 24.64% in November compared with that in the same month in the past year. It stood at Tk2.99 lakh crore at the end of November.
Meanwhile, domestic credit widened by 15.79% in November.
Bankers' take
Bankers said that several banks have been purchasing dollars almost every day from the central bank in exchange for the taka to clear import bills during the last few months. As a result, the majority of lenders are witnessing a shortage of loanable funds.
Regarding the slight increase in private sector credit growth, Selim RF Hussain, chairman of the Association of Bankers Bangladesh (ABB) and managing director and CEO of Brac Bank earlier said: “I think rescheduled loans may be the main part of this growth. As many loans are being rescheduled, it would be unwise to see them as new loans.”
“That means, the fresh loans are not the sole reason behind the growth in private sector credit,” he also explained.
However, a recent report of the central bank blamed the unprecedented depreciation of the taka against the US dollar for the increase in the private sector credit growth at higher rates in recent times.
What the central bank says
According to a recent study by the central bank titled "Impact of Exchange Rate and Global Commodity Price Inflation on Private Sector Credit in Bangladesh," the two main factors for private sector credit growth are the exchange rate and global price.
According to the report, adverse commodity price shocks and exchange rate volatility can create challenges to the economy through credit channels which ultimately impact the bank's balance sheet.
First, a surge in import payments compared to that of export earnings leads to an increase in bank credit to the trade, which may create a potential liquidity mismatch.
Second, the shocks could unfavourably impact economic activity and agents' (including the government) ability to meet their debt obligations, thereby potentially deteriorating banks' balance sheets.
Large commodity price shocks can also affect bank balance sheets by weighing on a country's reserves and increasing the risk of currency mismatches.
Third, a sharp increase in global commodity prices can impact commodity importers' budgetary balance, which may drive the government to adjust its budget to contain any such budgetary imbalance.
On December 22 last year, Bangladesh Bank published this research work carried out by its Chief Economist's Unit where it cited various risks emanating from the ongoing volatility in the country's foreign exchange sector.
