The private sector credit growth in Bangladesh fell to 6.82 per cent in February, hitting its lowest in 21 years, according to available data.
The Bangladesh Bank data showed that the growth was the lowest since February 2004 when the rate was 14.4 per cent.
Economists said that the plunge reflected a deepening crisis in the country鈥檚 banking and business sector, as credit growth continued to fall for the seventh consecutive month.
The reciprocal tariffs the United States has imposed on Bangladeshi products may deepen the crisis, they said.
The private sector credit growth stood at 7.15 per cent in January 2025, 7.28 per cent in December, 7.66 per cent in November, 8.3 per cent in October, 9.2 per cent in September, 9.86 per cent in August, 10.13 per cent in July and 9.84 per cent in June 2024, according to the Bangladesh Bank data.
The downward trend began in November 2022, but the situation worsened amid political uncertainty after the political changeover on August 5, 2024.
Bangladesh Bank鈥檚 new monetary policy, announced in January, maintained a private sector credit growth target of 9.8 per cent through July 2025.
However, the actual growth has remained far below the target, raising concerns about the economy鈥檚 momentum.
Economists warn that such sluggish credit growth could stall industrial expansion, deter new investments, and limit employment opportunities.
They attributed the slowdown to several issues, including a stagnant business climate, increased regulatory scrutiny by the central bank, political instability, weak law enforcement, and the exit or downsizing of business by people previously liked to the ousted Awami League regime.
Zahid Hussain, former lead economist at the World Bank鈥檚 Dhaka office, told 抖阴精品 that the private sector credit was on the decline due to a combination of factors, with political uncertainty playing a key role.
He said that credit demand was unlikely to rebound until the political situation stabilised, as businesses remained cautious in the period leading up to the next national election.
Zahid noted that most bank loans were geared towards production and investment, and the slowdown in credit growth signalled weak demand in the business sector.
He also pointed out that several banks, particularly those whose boards have recently been restructured by the Bangladesh Bank, were restricted from issuing large loans, which constrained credit supply further.
While governance has improved somewhat and the practice of disbursing loans anonymously has reduced significantly following the recent political shift, but political uncertainty after the changeover has also contributed to the slowdown in the overall credit growth, Zahid observed.
He said that the US tariffs scheduled to be effective from today would also worsen the situation.
Bankers said that the business climate remained subdued despite the installation of an interim government after the ouster of the authoritarian Sheikh Hasina regime.
They cited high inflation, surging lending rates and weak loan recovery as major challenges.
The Bangladesh Bank鈥檚 February 10 monetary policy statement acknowledged that the credit slowdown was not solely the result of policy rate hikes, but was compounded by slower deposit growth and higher government borrowing from commercial banks, which further squeezed out the private sector.
The central bank鈥檚 contractionary policy, including raising the policy rate to 10 per cent, has pushed commercial lending rates close to 15 per cent.
These high borrowing costs have made loans unaffordable for many businesses.
Confidence among depositors has eroded following widespread loan scandals and irregularities during the past government.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told 抖阴精品 that credit demand in the financial market remained weak due to the prevailing economic and political situation in the country.
He said that the business environment was unlikely to improve significantly before the national election was held.
Mahbubur also pointed out that the law and order situation along with global economic conditions could further impact Bangladesh鈥檚 economic indicators.
He observed that the recent US tariffs on Bangladeshi products might hurt businesses, which, in turn, would reduce credit demand in the banking sector.
Several businesses who were linked to the Sheikh Hasina regime have also scaled down or shut operations, citing legal pressure and alleging unfavourable environment for doing business, which has further reduced credit demand and economic activities in the country.
The banking sector鈥檚 ability to extend credit has also been severely impacted by rising defaulted loans, significant deposit withdrawals and liquidity shortages.
The amount of non-performing loans in the country鈥檚 banking sector surged in 2024, reaching Tk聽3.45 lakh crore at the end of the year compared with that of Tk聽1.45 lakh crore in December 2023.
Some banks have sought assistance from the central bank and larger banks to meet daily cash demands.
Economic challenges such as high inflation, foreign exchange volatility and the ongoing dollar shortage have compounded the crisis.
The exchange rate has surged to Tk聽122 per US dollar from Tk聽90 in two years, significantly raising import costs.
