Pvt sector credit hits to 22-month low

Mahfuz Emran: The growth rate of bank loans to the private sector in the country has fallen to the lowest level in 22 months. As of last, credit growth stood at 9.82 percent in July this year. It was 10.57 percent in the previous month of June. Earlier in October 2021, the growth of private sector credit flow was 9.44 percent.
Bankers and sector stakeholders say that due to defaulted loans, banks have to keep more security reserves. Deposits are not getting as expected due to low interest rates. Many banks are in liquidity crunch. Besides, the production in the country has decreased due to various crises. Banks do not want to give loans to everyone in the election year, and entrepreneurs are not going to come to new investments in the political heat. All in all, many of those who want to take a loan are not interested in giving a bank loan. And the banks that are interested in giving loans, they do not want to take loans for now. Due to these reasons, credit growth in the private sector has slowed down.
According to economists, less credit in the private sector means less investment in the country and less trade. The country’s employment and the income of common people is decreasing. Borrowing is bad for the household but good for the economy if the loan is repaid.
Finance advisor of the former caretaker government regarding the decrease in debt growth in the private sector. AB Mirza Azizul Islam told Daily Industry that it is not desirable to reduce private debt. A decrease in private sector credit means that investment will decrease. When investment is low, employment will also decrease, adversely affecting poverty alleviation.
He said that the country’s capital market has not yet achieved the capacity to finance the private sector. Therefore, the private sector is still financed by the banking sector. Many banks don’t have enough liquidity right now. Again, thinking about the environmental situation, many people are not taking loans. Because there is a kind of political instability in the country now. In such situation entrepreneurs are not interested in new investments. Because now if you can’t use the money properly with the loan then you won’t be able to repay the loan on time. Then default will occur; will be punished. Due to these reasons, credit growth in the private sector is decreasing. I think the government will not be able to achieve the target set by the private sector credit in the current financial year.
According to the data of Bangladesh Bank, at the end of last July, the debt status of banks in the private sector stood at Tk 14 lakh 85 445 crore. But in the previous month too, the private sector received a loan of Tk 14 lakh 94 thousand 99 crore. That is, the loan disbursement has decreased by Tk 8,654 crore within one month. However, the private sector received 9.82 percent more loans than the loans disbursed in July of the previous year. Because private sector entrepreneurs took a loan of Tk 13 lakh 52 thousand 566 crore in July 2022.
Bankers say that the total amount or status of any loan is calculated with interest from the previous year. As a result, the actual or net debt increases in the next year without any distribution compared to the previous year. Even after adding interest, private debt has decreased this time. That is, no new loans are being distributed to the private sector.
Even in June, the last month of fiscal year 2022-23, the target was not achieved in private sector credit growth. Bangladesh Bank had set a target of 14.10 percent for the financial year ended. But the banking sector could not achieve that target in any month of last year.
Data shows that credit growth in the private sector has been declining consistently. At the end of last June, growth stood at 10.57 percent. It was 11.10 percent at the end of the previous month. And at the end of June last year it was 13.66 percent.
According to the data of Bangladesh Bank, despite the increase in domestic debt, the short-term foreign debt of the private sector is decreasing. At the end of last July, the short-term foreign debt of the private sector decreased to $1,338 million. At the end of June last year, which was $1,775 million. This means a decrease of $437 million or 24.061 percent in 1 year.
Before that, the debt was growing little by little almost every year. Especially, during the corona virus, it increases greatly. At the end of 2020, the short-term foreign debt was $9.13 billion. $633 million in one year or 69.28 percent increased to $1,546 million at the end of 2021. In addition to short-term loans to the private sector, there is another $810 billion in medium and long-term foreign loans as of last March. Mainly because the interest rate has gone up and it is difficult to get new loans, the foreign debt is decreasing.
Those related to the sector said that there is a dollar crisis in the country. Therefore, imports have been reduced in recent times through various regulatory measures to reduce pressure on the dollar. But could not reduce the pressure of foreign exchange. Bangladesh Bank has sold $13.58 billion from the reserve last financial year to handle the market in such a situation. Last fiscal year sales were $7.62 billion. On the contrary, the central bank has withdrawn a lot of money from the market. As a result, the loanable funds of the banks are decreasing.
Deposits have not been growing at the desired rate in recent times due to systematic withdrawal of money from the market and high inflation. In this, various irregularities and benami loans are being looted from the bank. Many have withdrawn money from the bank and left it at home in fear of getting this information out through various channels. As a result, eight banks, including five based on Shariah, have not been able to keep statutory cash deposit (CRR) in the central bank for many days. Some banks are unable to pay the fine. Due to these reasons, the prices of most products are increasing, but the debt is not increasing in that way.
Objectives of credit to private sector
In the budget of the current financial year, the government has set a target of 6 percent inflation and 7.5 percent growth. The central bank has placed more emphasis on controlling inflation than on growth in monetary policy. In the last monetary policy, a target of 14.10 percent lending to the private sector was given. However, a target has been given to raise it to 10.90 percent in the private sector in December and to 10 percent by the end of the financial year. The government sector has set a growth target of 43 percent in December and 30 percent next June.