Private sector credit growth hit a 13-year low of 11.04 per cent in the recently concluded fiscal year 2012-13 due to political instability, higher interest rate on lending and bank scams, said economists and business leaders.
According to the Bangladesh Bank data released on Thursday, the credit growth in the private sector slumped to 11.04 per cent in FY 2012-13 compared with that of 19.72 per cent in the FY12.
A BB official said that the central bank’s initiative had failed completely to make the private sector vibrant by increasing the target of private sector credit growth for the monetary policy of January-June in 2013.
The BB set a credit growth target of 18.50 per cent for the period instead of projected target of 18 per cent amid repeated demand from the business people.
The BB data showed that the private sector posted a credit growth of 10.75 per cent in the FY 2000.
The credit flow to the private sector had stood at Tk 4,52,925.10 crore in June of 2013 against Tk 4,07,901.60 crore in the same month of 2012. It was Tk 3,40,712.70 crore in June 2011.
Dhaka University economics department chairman MA Taslim told New Age on Thursday that credit growth in the private sector declined in FY13 due to recent spates of political violence.
The investment environment faced a major setback in the last one year and six months resulting in decline in the credit growth, he said.
He said, ‘The BB took contractionary monetary policies consecutively in the period that also discouraged the business people to take loan with a higher interest rate to invest in the productive sector.’
Nobody is now making large-scale investment as they have adopted a ‘wait and see’ approach amid political unrest, he said.
He said that credit growth in the private sector would decline further in the months to come if political uncertainty continues.
The next year might be more tough for the private sector with unearthing of more bank scams, he said.
A BB official said that the central bank had slashed its interest rates on repurchase agreement (repo) and reverse repo by 50 basic points on January 31, 2013 after nearly four years.
The BB took the initiative to encourage new investments, particularly in the productive sectors, he said.
But the initiative of the central bank has virtually failed as the scheduled banks did not cut down their rate of interest on lending, he said.
Former Dhaka Chamber of Commerce and Industry president Asif Ibrahim told New Age that the higher bank rate of interest on lending was one of the main causes of declining trend in the private sector credit growth.
The interest rate increased as the BB took a number of contractionary monetary policies in the last two years, he said.
He said, ‘The Banking sector has recently faced a number of financial scams. For this reason, the banks have taken cautious policy to sanction and disburse loans which also played a role in declining trend in the credit flow to the private sector.’
The current political instability is also discouraging the businessmen to invest in new industrial units by taking loan, he said.
The BB data showed that credit growth in the overall domestic sector slumped to 13.49 per cent in June compared with that of 19.56 per cent in the corresponding month of 2012.
The total credit in the domestic sector in June stood at Tk 5,88,281.40 crore against Tk 5,18,335 crore in the same month of 2012.
-With New Age input
