Bangladesh’s private sector credit growth has collapsed to its lowest level in nearly a quarter century as aggressive government borrowing from banks squeezes businesses out of the financial system, raising fresh fears over investment stagnation, factory slowdowns and weakening job creation ahead of the new national budget.
According to Bangladesh Bank data, private sector credit growth fell to just 4.72% in March 2026 -- the lowest rate recorded in 24 years.
The decline marks a sharp fall from 6.58% in November last year and comes amid mounting economic stress driven by inflation, exchange-rate volatility, energy shortages and rising non-performing loans in the banking sector.
Economists, bankers and industrialists warn that the government’s rapidly expanding dependence on domestic bank borrowing to finance its fiscal deficit is creating a severe “crowding-out” effect, where banks increasingly prefer lending to the state instead of businesses.
As a result, fresh industrial investment is slowing sharply even though total outstanding private sector credit has reached nearly Tk18 lakh crore.
Senior bankers say many industrial groups have significantly scaled back operations following recent political and economic instability, while some factories have shut down entirely.
Many operational manufacturing plants are now running far below capacity, with some functioning at only 30% to 40% of their full production capability, according to banking officials.
At the same time, the cost of borrowing has surged.
Average commercial lending rates have climbed close to 12%, while industrial and working-capital loans are often carrying interest rates between 13% and 15%, levels manufacturers say are increasingly unsustainable for large-scale production.
The government’s borrowing spree has intensified pressure on the banking system.
In the current fiscal year, the government originally targeted Tk104,000 crore in bank borrowing. But by April 9 alone, it had already borrowed Tk112,761 crore -- exceeding the annual target before the fiscal year even ended.
By late March, total government debt owed to the banking sector surged to nearly Tk657,000 crore, while sovereign debt holdings jumped about 30% year-on-year between January 2025 and January 2026. Over the same period, private sector credit grew by only 6%.
Economists warn the trend is distorting the financial system.
To finance rising deficits and subsidy costs, the government has increasingly issued high-yield treasury bills and bonds, offering banks a low-risk alternative to private lending. Commercial banks, already burdened by large volumes of bad loans, are shifting portfolios toward government securities instead of corporate financing.
Khondaker Golam Moazzem of the Centre for Policy Dialogue said restoring confidence would require stabilizing inflation, exchange rates and interest rates simultaneously.
Former World Bank economist Zahid Hussain warned that relying heavily on domestic banks may provide short-term fiscal relief but risks damaging long-term economic growth.
Analysts say the pressure is being worsened by a projected revenue shortfall exceeding Tk70,000 crore and weaker-than-expected foreign financing inflows.
Meanwhile, Bangladesh Bank has tightened scrutiny of large corporate lending and launched forensic reviews of commercial loans exceeding Tk20 crore issued since July 2025 in an effort to curb irregularities and capital flight.
Bankers say while the move may improve discipline, it has also slowed major loan approvals further.
