Private sector credit growth was sluggish to 9.95 per cent in January from 10.13 per cent due to higher interest rates imposed by the Bangladesh Bank’s contractionary monetary policy eventually discouraged businessmen from taking fewer loans from the banks.
By the end of January 2024, private credit had increased to Taka 15.67 lakh crore from Taka 14.26 lakh crore in January 2023.
Industry analysts claim that the main causes of this slow development include declining imports due to the lack of foreign exchange, rising lending rates, and a bank liquidity crisis.
As part of its tightening measures to control high inflation, the central bank in January lowered the credit growth target to 10 per cent from 11 per cent for fiscal year 2023-24.
Mohammad Ali, managing director and CEO of Pubali Bank explained the reason and said that now borrowers are less interested in availing bank loans as the lending rate has continued to rise due to the contractionary monetary policy.
The policy rate—the amount that the central bank lends to financial institutions—was raised by 25 basis points to 8 per cent in January by Bangladesh Bank.
Ali stated that because of the US currency crisis in banks, which decreased demand for borrowing, entrepreneurs require assistance to purchase capital machines.
Ali clarified that the difficulties in opening Letters of Credit (LC) in the face of the US dollar scarcity have caused numerous industries to halt operations or operate at a reduced capacity, which affects credit growth.
