The private sector credit growth in the country remained stagnant in February due to a combination of factors, including a liquidity shortage, reduced loan disbursement capacity by banks and the ongoing economic challenges.
Bangladesh Bank鈥檚 data showed that private sector credit growth inched up to 9.96 per cent in February, compared with that of 9.95 per cent in January 2024 and 10.2 per cent in December 2023.
This trend follows the previous months, with rates at 9.9 per cent in November and 10.09 per cent in October 2023.
The central bank responded to this by lowering the private sector credit growth target to 10 per cent for January-June of the financial year 2023-24, down from the previous target of 11 per cent.
This adjustment reflects concerns over reduced interest from private sector investors, driven by higher borrowing costs, ongoing global and domestic economic uncertainties, liquidity constraints within the banking sector and the implementation of a contractionary monetary policy, bankers said.
Furthermore, the central bank continued its foreign currency sales, which acted as automatic quantitative tightening measures, significantly absorbing liquidity from the system.
Bankers have highlighted several challenges within the financial sector, including a liquidity shortage, sluggish deposit growth, a rise in non-performing loans and increased cash withdrawals by clients.
Many banks are now facing cash crises and have sought assistance from the central bank and larger banks to meet their daily cash needs, they said.
Economic challenges, such as high inflation, foreign exchange volatility, a dollar shortage, and an energy crisis, have further dampened business activities, making businesses hesitant to seek bank loans.
The government and Bangladesh Bank have also tightened monitoring and imposed restrictions on imports, which have curtailed business operations and reduced the demand for credit.
Additionally, deposit growth has been poor, while banks鈥� NPLs have soared during the reporting period, making it challenging for banks to disburse loans.
Over the past 32 months, the central bank has sold approximately $30 billion from its reserves, with $9.7 billion allocated to banks in July-February of the current financial year 2023-24, $13.5 billion in FY23, and $7.62 billion in FY22.
This significant depletion of reserves has contributed to the depreciation of the local currency, with the exchange rate reaching Tk 110 from Tk 90 against the US dollar within a year.
