Credit growth in the private sector dropped further in April due mainly to the recent spates of political turmoil, gas and electricity shortage in the industrial units,
and high interest rate on banks’ lending, said officials of Bangladesh Bank.
According to Bangladesh Bank data released on Thursday, credit growth in the private sector slumped to 12.68 per cent in April compared with that of 18.21 per cent in the corresponding month of 2012.
Credit flow to the private sector in April stood at Tk 4,40,218.10 crore against Tk 3,90,663.80 crore in the same month of 2012. The credit flow was Tk 3,30,460.70 crore in April 2011.
‘The ongoing political turmoil is one of the pivotal causes of the fall in growth of credit flow to the private sector,’ a senior BB official told New Age on Thursday.
The businesspeople have recently adopted a ‘wait and see’ approach to expand their investment due to the political unrest, he said.
The central bank took a slightly expansionary monetary policy for January-June of 2013, setting a credit growth target of 18.50 per cent for the period amid repeated demand from the business people.
But, the expected credit growth in the private sector for the current term might not be achieved as the credit demand from business sector was still very low.
The recent scams in the banking sector are the other reason for the declining trend in the credit flow to the private sector, he said.
He said that majority of the commercial banks had now taken cautious policy to sanction fresh loans due mainly to the recent loan scams that rocked the banking sector.
The credit growth in the private sector also declined to 7.92 per cent in July-April of the FY 2012-13 compared with that of 14.66 per cent during the same period a year ago.
As part of its expansionary monetary policy, the central bank cut its policy interest rates few months back to encourage credit flow to the private sector, another BB official said.
The central bank slashed its interest rates on repurchase agreement (repo) and reverse repo by 50 basis points on January 31, 2013 after nearly four years.
The BB took the initiative to encourage new investments, particularly in the productive sectors, the official said.
The interest rate on repo auction came down to 7.25 per cent from 7.75 per cent while the interest rate on reverse repo was re-fixed at 5.25 per cent from 5.75 per cent.
But the BB initiative has not succeeded much to decrease the interest rate on bank’s lending, the official said.
BB data showed that as many as 26 banks had failed to comply with the BB’s directive to bring down their interest spread rate below five percentage points by March meaning that they had charged higher interest rates for lending and offering lower rates for deposit collection in the month.
A number of trade bodies have been expressing dissatisfaction for long due to the higher interest rate on banks’ lending, the BB official said
They claimed their business was not viable by receiving loan with 18 per cent to 20 per cent interest rate from the banks, he said.
Under the circumstances, the situation has created an adverse impact on the private sector credit growth, he said.
He also said that the business people could not set up new industrial unit in the last few months due to the shortage of gas and electricity which declined the demand of banks’ credit.
The BB data showed that credit growth in the overall domestic sector slumped to 13.62 per cent in April compared with that of 21.04 per cent in the corresponding month of 2012.
The total credit in the domestic sector in April stood at Tk 5,67,567.40 crore against Tk 4,99,535.90 crore in the same month of 2012.
According to BB data credit growth in the private sector was 12.72 per cent in March compared with that of 19.45 per cent in the corresponding month of 2012.
-With New Age input
