Credit growth slows

Private sector credit growth fell by more than two percentage points in September as banks slowed loan disbursement amid liquidity crunch, snapping a seven-month upward trend. 

The credit growth stood at 11.93 per cent last month in contrast to 14.07 per cent recorded in August, data from Bangladesh Bank showed.

Many banks have reduced their loan disbursement owing to an acute liquidity crunch stemming from the ongoing volatility in the foreign exchange market, tightening the credit supply. 

Some banks are purchasing American greenbacks almost every day from the central bank in exchange for the taka, so a majority of lenders are witnessing a shortage of loanable funds.

The central bank has injected more than $4.50 billion into banks to help businesses clear their import bills.

September's credit growth was well below the BB's target of 14.1 per cent set for the current fiscal year. It expanded 14.5 per cent the year before as the demand for funds rose thanks to the recovery of the economy from the coronavirus pandemic.

The credit growth maintained an upward movement between March and August, creating worries for policymakers owing to runaway inflation.

Inflation surged to a 10-year high of 9.52 per cent in August. It, however, fell to 9.10 per cent in September.

So, the fall in credit growth will give some breathing space to the central bank as the factors such as the higher commodity prices globally, the Ukraine war and the supply disruption that are largely responsible for the higher consumer prices are showing no sign of coming to an end anytime soon.

"A good number of banks are feeling the pinch of the liquidity stress," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

He said banks have adopted a cautious stance to disburse loans due to the lower profit margin. "So, the credit growth decreased in September."

The cost of funds for banks has gone up in recent months.

The interest rate on deposits has climbed to 7 per cent in recent months after staying below 6 per cent for more than two years. But the maximum interest rate on loans has been at 9 per cent since April 2020 owing to a central bank's ceiling.