Private credit growth hits 33-month low
Private sector credit growth slowed to a 33-month low in September as the businesses could hardly take fresh loans from banks amid escalating political tension ahead of the upcoming parliamentary elections.
The credit growth stood at 14.67 percent, the lowest since December 2015 when it was 14.19 percent, according to Bangladesh Bank data.
This growth was over two percentage points less than the central bank's target of 16.8 percent for the first half of the current fiscal year.
However, bankers and an economist said both the supply and demand sides were liable for the slowdown.
The supply side, meaning the lenders, are fearful of disbursing loans to contractors particularly dedicated towards implement mega infrastructure projects as the latter may lose work contracts if there is a change in government through the election, they said.
Private sector credit growth slowed a bit in 2017's first quarter and then rose till November, reaching 19.06 percent. But it steeply descended from March to September this year for the escalating political tension.
The latest trend of the credit growth will adversely impact the GDP growth desired for this fiscal year, economist AB Mirza Azizul Islam told The Daily Star yesterday.
The private investment to GDP ratio has been facing a standoff over the past decade, standing at 23.2 percent last fiscal year, up slightly from 21.9 percent in 2008-09, said Islam, also a former caretaker government adviser.
He feared that the situation may worsen for the election, scheduled to be held in the last week of December.
The businesses and banks are now in panic, uncertain of what the situation will prevail during the election and after, he said.
A majority of the lenders have almost been unmoving in disbursing loans keeping the election in mind, said M Kamal Hossain, managing director of Southeast Bank.
In addition, the lenders are showing unwillingness to disburse loans at 9 percent interest rate as they have collected deposits at 6 percent. Financial hardships have stemmed from bank owners' recent decision of setting 9 percent and 6 percent as the rates for lending and deposit respectively, Kamal said.
On June 21, the Bangladesh Association of Banks, a forum of directors of private banks, decided to lower the rates from July 1.
Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a platform of private banks' managing directors, however, said many banks were yet to implement the decision as depositors had shown little interest in keeping their deposits at 6 percent.Banks are now concerned over how they would implement the central bank's decision to slash the loan-deposit ratio by 1.5 percentage points to 83.5 percent by March next year, he said.
“My bank has been facing a deposit withdrawal pressure after setting 6 percent as the rate for depositors. So we have forcefully adopted a slow lending policy to keep stable our loan-deposit ratio,” said Rahman, also managing director of Dhaka Bank.
