Despite demand for loans being suppressed by the ongoing business slowdown, personal sector credit growth crept up in December following undergoing a steep descent in the last two months.
The year-on-year credit growth stood at 8.37 % in December, up from 8.21 % a month earlier, showed info from Bangladesh Bank.
In its financial policy statement for fiscal 2020-21, the central bank set an exclusive sector credit expansion target of 11.5 % by December this past year and 14.8 % by June this year.
But till date, it has turned out to be far from reality as a result of the financial meltdown due to the coronavirus pandemic.
Banks add accrued interest to the main amount of loans found in the final month of each quarter, which often pushes up credit expansion temporarily, said bankers.
For this reason, the credit development inched up previous month, which explains why the increase in growth shouldn't be termed an extraordinary phenomenon, they said.
In accounting, accrued interest identifies the amount of interest that has been incurred, as of a particular date, on financing but hasn't yet been paid out.
Accrued interest could be in the sort of accrued interest revenue for banks.
Credit growth has been subdued in the last two years nonetheless it started undergoing a tailspin soon after the federal government declared the lockdown found in March last year to keep the deadly flu away.
The growth commenced to improve since July last year riding on the implementation of stimulus packages by both government and the central lender.
However the increasing trend lasted till September and the expansion began to nosedive again from October.
The banking sector can be facing a burden of excess liquidity as a result of feeble credit demand from businesses and commoners in tandem.
Excess liquidity in banking institutions escalated 95 % year-on-year to Tk 204,700 crore found in December last year.
There have been no extraordinary reason behind the upsurge in credit expansion in December just as banks hadn't experienced any specific robust loan demand from borrowers, said Emranul Huq, managing director of Dhaka Bank.
Adding accrued fascination to the principal loans sum pushed the credit rating growth for the time being, he said.
Borrowers had enjoyed financing moratorium throughout this past year, meaning that most clients did not pay the interest connected with loans they availed.
So, banking institutions were forced to add the accrued curiosity to the main loan amount of debtors, Huq said.
Furthermore, banks also tried to provide out loans in the concluding month of last year as part of efforts to widen their balance sheets, giving a push to credit rating growth somewhat, he said.
"Businesses are still taking the cautious way for growth of their industrial systems given the ongoing organization slowdown. Thus, the increased credit growth in a genuine sense did not bring any optimism currently," he said.
Md Arfan Ali, managing director of Bank Asia, echoed him.
But he went on expressing hope that the credit rating growth would get yourself a boost within the next 2-3 months due to the optimism caused with the arrival of vaccines and expectations of an economic recovery from the next half of this year.
More than a few global think tanks have recently forecasted that the global economy will rebound strongly from the next half of the year.
Such optimism has recently resulted in a hike on prices of commodities on the global market such as for example food grains, soyabean, steel, cotton and so on, Ali said.
This will widen import financing of banks next few months, that will subsequently increase export earnings aswell, he said
"The country will love the economical recovery at a faster speed than what the nations of the Eurozone and North America will experience in the returning days," he said.
In recent months, the health complications stemming from the coronavirus are fading from Bangladesh, creating good hopes of a recovery in the quickest feasible time, he said.
Syed Mahbubur Rahman, handling director of Mutual Trust Bank, said it would take by least the primary quarter to permit predictions on whether the credit development would witness a sustainable go up.
The monetary recovery largely depends upon the potency of vaccination process around the world, he said.
"We may get yourself a rest from the ongoing uncertainty within this quarter as the vaccination procedure will love a momentum during this period," Rahman said.
People will also get to know about the payoffs from the vaccine, he said.
The outstanding loans in the private sector stood at Tk 11,41,342 crore by December as opposed to Tk 11,20,902 crore the previous month.