The private sector credit growth in the country dropped in August compared with that in the previous month amid turmoil in the banking sector and business environment.
Bangladesh Bank鈥檚 data showed that the growth dropped to 9.86 per cent in August from 10.13 per cent in July and 9.84 per cent in June.
The rate was 10.35 per cent in May, up from 9.9 per cent in April, which was 10.49 per cent in March, 9.96 per cent in February, 9.95 per cent in January and 10.2 per cent in December of 2023.
Bankers said that the private sector credit growth declined in August due to stagnant business activities amid major political changes and unrests across the country.
The unrests began in July, with business disruptions stemming from curfews, protests, and an internet blackout.
Protests were led by the Anti-Discrimination Students Movement, which began on July 1 and ended on August 5 when Sheikh Hasina resigned as prime minister and fled to India on August 5.
In August, tensions continued amid the formation of an interim government, violence and sweeping changes in different administrative bodies.
Therefore, credit demands declined as businesses took a wait-and-see policy, bankers said.
Moreover, liquidity crisis worsened in the banking sector which saw massive loan scandals and irregularities during the Awami League regime, they said.
Many people withdraw their deposits amid fear of losing their money, bankers said.
Therefore, cash outside bank soared to Tk 2.92 lakh crore in August from Tk 2.50 lakh crore in the same month in 2023.
In addition, the banking sector鈥檚 loan disbursement capacity also diminished due to high amount of defaulted loans, deposit withdrawals by clients and ongoing economic challenges, bankers said.
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.
According to Bangladesh Bank data, deposits (excluding interbank and government deposits) fell to Tk 17,31,260 crore in August, down from Tk 17,34,026 crore in July and Tk聽17,42,224 crore in June.
Economic challenges such as high inflation, foreign exchange volatility, dollar shortage and an energy crisis have further dampened business activities, making businesses hesitant to seek bank loans.
The central bank鈥檚 contractionary monetary policy also weighed heavily on the private sector credit growth.
It raised the policy rate to 9.5 per cent to make the money more expensive in a bid to control inflation.
A dollar shortage in the country has curtailed business operations and reduced the demand for credit.
The exchange rate reached Tk聽118 from Tk 93 against the US dollar within a year.
