A persistent decline in private-sector credit growth is concerning. A sluggish private sector credit growth has a direct negative impact on industrial expansion, new investment and employment opportunities. The private sector credit growth fell to 6.82 per cent in February, hitting its lowest in the past two decades, according to available Bangladesh Bank data. A decline in the private sector credit growth, which began to fall sharply since November 2022 and worsened amid political uncertainty after the political changeover in August 2024, reflects a deepening crisis in the banking and business sectors. The new monetary policy of the Bangladesh Bank, announced in January, projected a private-sector credit growth target of 9.8 per cent through July 2025, but the actual growth has remained far below the target, raising concern about the economy鈥檚 momentum and the business environment. 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 official data.
Economists attribute the sluggish growth to several issues, including a stagnant business climate, increased regulatory scrutiny by the central bank, political instability, weak law enforcement, surging lending rates, an excessive government borrowing from the banks and the closure or downsizing of businesses by people previously linked to the ousted Awami League regime. The central bank鈥檚 monetary policy statement says that the credit slowdown has not only resulted from policy rate hikes, which have increased lending rates close to 15 per cent, but also been compounded by slower deposit growth and higher government borrowing from commercial banks that have further squeezed out the private sector. What also comes to strike is that despite a slower deposit growth in the banking sector, there has been a surge in the number of high-value accounts, which increased by 4,954 in September-December. The concentration of wealth in high-value accounts suggests that people with money are still not confident about exploring alternative investment, which could have created jobs. This indicates a stagnant business environment. Businesses appear to have adopted a cautious 鈥榳ait-and-see鈥� approach, holding back new investment. As the private sector employs about 90 per cent of the work force, a decline in private sector credit growth and a stagnant business environment remain alarming.
The government should, therefore, shore up the issues to facilitate private-sector credit growth. It should improve the business environment so that people with money can invest in business and ensure that the private sector does not get crowded out.
