Private sector credit growth fell for the fifth consecutive month in April. It registered a growth rate of 11.28%, the lowest in the last 15 months.
Growth has been declining since November when it was recorded at 13.97%.
It was 12.89% in December, 12.62% in January, 12.14% in February and 12.03% in March.
Economists and bankers expressed concern about the government's heavy borrowing from banks, warning that the trend could contribute to inflationary pressures by driving up consumer prices, further reducing private sector growth.
This basically reflects the country's macroeconomic indicators such as a slump in business activities amid import curbs, dollar shortage, high non-performing loans (NPL) and governments heavy borrowing from banks.
Government's heavy bank borrowing
The government borrowed Tk20,678 crore from commercial banks during the July-May quarter of FY23, according to Bangladesh Bank data.
While the sum was merely Tk1,980 crore in the same fiscal year's first two months (July-March).
When we consider the overall borrowing, the scenario becomes clearer.
The overall borrowing from the banking system (with the central bank and commercial banks) was Tk92,288 crore in the July-May period, compared to Tk52,360 crore in the July-March period of FY23.
For the fiscal year 2022-23, the target for borrowing from the banking system has been set at Tk1,06,334 crore.
The government borrowed Tk34,009 crore from the banking system in July-May in the previous financial year 2021-22.
Data also revealed that the total outstanding loans of the government from the commercial banks soared to Tk2,34,997 crore at the end of May from Tk2,16,300 crore in March 2023, according to the BB data.
The government's total outstanding borrowing from the banking sector increased to Tk3.66 lakh crore on May 31, 2023, which was Tk2.14 lakh crore on June 30, 2022.
However, for the upcoming FY24 government set the bank borrowing target at Tk1,32,395 crore.
Liquidity shortage
Bankers said that the private sector credit growth continued to decline due mainly to a liquidity shortage in the country's banking sector.
Excess liquidity in the banking sector has steadily decreased over the past few months due to various factors, such as increased dollar sales by the Bangladesh Bank amid a dollar shortage in banks, lower deposit rates, rising inflationary pressure, and cash withdrawals following bank loan scandals.
According to the central bank data, the amount of excess liquidity in banks dropped to Tk1.52 lakh crore in April 2023 from Tk2.03 lakh crore in June 2022.
Rising NPLs
Non-performing loans are another cause for concern.
The banking sector's high percentage of defaulted loans has also contributed to a drop in credit availability.
As a result, banks' lending requirements have tightened and their exposure to risky loans has decreased, weighing on private-sector credit growth.
Default loans have increased to Tk1,31,620 crore by the end of March 2023, up from Tk1,20,656 crore at the end of December 2022.
Dollar crisis
The most serious economic challenge in the previous fiscal year was the dollar crisis and the taka depreciation.
Between June 30, 2022 and June 30, 2023, central bank reserves fell by $10.52 billion, or 25.39%.
According to Bangladesh Bank data, the US dollar's exchange rate against the Bangladesh Taka has increased by Tk23, or 26.75%, since March of last year.
Such a catastrophe in both Taka depreciation and Forex reserve depletion has never occurred in Bangladesh's history.
Other macroeconomic indicators
According to bankers, the country's economy has been battling with some issues, including rising inflation, foreign exchange instability, and an energy crisis, all of which have resulted in a decrease in corporate production.
In June, the final month of the recently finished FY23, the Bangladesh Bureau of Statistics recorded 9.74% inflation, compared to 9.94% inflation in May.
Decreased investment, low consumer spending, and dwindling company confidence have all contributed to this downward trend.
The Bangladesh Bank's restrictions on luxury imports and greater supervision of imports have added to the factors contributing to lower credit growth.
To combat inflationary pressures, Bangladesh Bank decreased the private sector credit growth objective for FY23 to 14.01% from 14.8% in FY22, and for the first six months of FY24, Bangladesh Bank set its private sector growth target at 11.0% only.
