Private sector credit growth down turn continues as new investment to a halt

Business Report :

Private sector credit growth hit a new low of 6.49 per cent and 6.52 percent in June and July respectively this year, deepening slowdown in country’s business investment adding new concerns on the pathway to economic momentum.

General Economics Division (GED) of the Planning Commission shows the situation in its September report titled ‘Economic Update and Outlook’, released recently.

At the end of June, the last month of FY 2024-25, outstanding loans to the private sector stood at TK 17.47 lakh crore and in July, the first month of FY 2025-26, the figure had dropped to Tk 17.42 lakh crore indicating that instead of growth, the outstanding loans fell by BDT 50.53 billion in the first month of the fiscal year.

Bank executives say that banks are not issuing new loans in any significant sense. The annual loan growth that appears on paper has come mainly from unpaid interest and higher rates, not from fresh lending. Such a drought in private sector credit has never been seen before.

To control high inflation, the central bank has been announcing contractionary monetary policies for three consecutive fiscal years. As part of this contractionary stance, the loan growth target for the private sector was set at 9.8 percent in FY 2024-25.

But by the end of the fiscal year, the banking sector fell far short of that goal. In FY 2024-25, loan growth in the private sector reached only 6.5 percent. In response, Bangladesh Bank lowered the loan growth target to 7.2 percent when announcing the monetary policy for the current FY 2025-26. However, this target also remained unmet as of the end of July. According to Bangladesh Bank, from July 2024 to the same month in the current fiscal year, loan growth stood at 6.52 percent.

The General Economics Division (GED) of the Planning Commission has described the prevailing loan growth in the private sector as historically the lowest.

In its September “Monthly Economic Update and Outlook,” the division said the growth rate falling far below the central bank’s target reflects business reluctance, high interest rates, political and economic uncertainty, and the cautious lending policies of banks.

Furthermore, deposit growth in the banking system also moderated, standing at 7.77percent at the end of June, down from 9.25percent a year earlier.

While remittance inflows and improved public confidence temporarily boosted deposits in March, this momentum did not carry into July and August, the report noted.

High inflation, reduced liquidity, and a preference for time deposits have contributed to the subdued growth in savings, limiting funds available for lending, it stated further.

Revenue mobilization was another weak spot as the report highlighted. The government collected Tk27,162 crore in August against a target of Tk30,889 crore, leaving a shortfall of Tk3,727 crore.
While year-on-year revenue rose 17.63percent, the gap underscored ongoing fiscal challenges and reliance on bank borrowing, which, in turn, contributes to the crowding-out effect on the private credit market.