Private sector credit marks slow growth

Private sector, the prime driving force of the economy, is yet to gain momentum as major fields including education are still passing through a depression as a result of the year-long covid shock.

With slow activities, the struggling manufacturing sector is marking narrow progress in business resulting in poor private sector credit growth in the recent past.

In January 2021, the credit flow in the private sector saw only a minor 8.32 percent jump, with an indication what the economists forecast might not make a takeoff before the second quarter of the year.

This gloomy picture in private sector credit growth during the month was reflected as businesses are yet to come up with fresh investments.

In January, private sector credit growth stood at 8.32 per cent, down from 8.37 per cent in the previous month, according to the provisional data from the central bank.

The figure is 6.48 percentage points lower than the BB’s target for this fiscal year.

The credit growth would not rise until March as a number of sectors, including education, are still affected by the coronavirus-induced economic slowdown, said Emranul Huq, managing director of Dhaka Bank.

The country’s educational institutions are still shut and a number of sectors are connected with the educational activities, which is one of the reasons for the slow credit demand.

“Our economy is yet to bounce back fully, so the businesses are going slow with their investment plans.”

The demand for credit will increase in the March-June quarter centring on PohelaBoishakh, the Bengali new year, and Eid-ul-Fitr, the two biggest festivals in Bangladesh, Huq added.

Between February and June of last year, private sector credit growth consistently dropped when the global coronavirus pandemic was in its ominous form. 

From 9.2 per cent in January it came down to 8.6 per cent in June of last year as the lenders refrained from disbursing credit during the countrywide shutdown from March 26 to May 30. 

Loan disbursement by banks was halted amid the shutdown period, which was the reason for the slow credit growth, said Rahman, also the former chairman of the Association of Bankers, Bangladesh (ABB), a forum of private banks’ managing directors.

However, the private sector credit growth has picked up slightly from July to September due to the implementation of stimulus packages by banks, he added.

Rahman projected that the private sector credit growth would hover around 8 to 9 per cent until March.

“It seems that the investors are not interested in investing yet,” said AB Mirza Azizul Islam, a former adviser to a caretaker government.

People’s income has eroded, which has resulted in weakened demand, he said, adding that the businesses would not produce goods when the demand is dull.

Since the demand is dull, businesses would neither enhance their capacity nor utilise their capacity in full, thus resulting in a decline in credit demand, Islam added.

The dismal demand for credit by businesses and the central bank’s expansionary monetary policy helped to raise excess liquidity in the banking sector. 

At the end of December last year, the excess liquidity in the banking sector stood at Tk 204,700 crore, which is the highest in recent times, as per the central bank’s latest data.

The surge in remittance inflow and the falling trend of import were the other reasons for the gush of excess liquidity in the banking sector.