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Dhaka Tribune

Private credit growth surges in March

BB data showed that the growth rose to 10.49% in March from 9.96% in February, 9.95% in January of 2024 and 10.2% in December 2023

Update : 06 May 2024, 06:42 PM

The country's private sector credit growth saw an increase in March, compared to the previous month mainly due to increased business activities during Ramadan.

Bangladesh Bank’s data showed that the growth rose to 10.49% in March from 9.96% in February, 9.95% in January of 2024 and 10.2% in December 2023.

This increase marked the highest growth rate since May 2023, when it reached 11.10%.

The growth increased in the reporting period due to high imports surrounding Ramadan and Eid-ul-Fitr, one of the largest festivals for Muslims.

Business activities typically increase significantly during Ramadan, which could raise the interest of businesses in borrowing from banks to meet their increased demands and capitalize on the festive season.

In November and October 2023, the growth rates were 9.9% and 10.09% respectively.

The growth had been hovering around 10% since June 2023 due to various factors, including a liquidity shortage, reduced loan disbursement capacity by banks, and ongoing economic challenges.

Responding to this, the central bank lowered the private sector credit growth target to 10% for January-June of FY24, down from the previous target of 11%.

This adjustment reflects concerns over reduced interest from private sector investors, driven by higher borrowing costs, ongoing global and domestic economic uncertainties, liquidity constraints within the banking sector, and the implementation of a contractionary monetary policy.

Furthermore, the central bank continued its foreign currency sales, which acted as automatic quantitative tightening measures, significantly absorbing liquidity from the system.

Bankers have pointed out several challenges within the financial sector, including sluggish deposit growth, a rise in non-performing loans and increased cash withdrawals by clients.

Many banks are now facing a liquidity crunch and have sought assistance from the central bank and larger banks to meet their daily cash needs, they also said.

Economic challenges such as high inflation, foreign exchange volatility, a dollar shortage, and an energy crisis have further dampened business activities, making businesses hesitant to seek bank loans.

The government and Bangladesh Bank have also tightened monitoring and imposed restrictions on imports, which have curtailed business operations and reduced the demand for credit.

Additionally, deposit growth has been poor, while banks’ NPLs have soared during the reporting period, making it challenging for banks to disburse loans.

Over the past 34 months, the central bank has sold approximately $32 billion from its reserves, with $11.67 billion allocated to banks in July-February of the current FY24, $13.5 billion in FY23, and $7.62 billion in FY22.

This significant depletion of reserves has contributed to the depreciation of the local currency, with the exchange rate reaching Tk110 from Tk90 against the US dollar within a year.

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