Private sector credit growth in Bangladesh fell sharply in September, reaching a three-year low amid turmoil in the banking sector and broader economic challenges.
Data from the Bangladesh Bank showed that the credit growth dropped to 9.2 per cent in September, down from 9.86 per cent in August, 10.13 per cent in July and 9.84 per cent in June.
This decline marked the lowest level since September 2021, when growth was at 8.77 per cent.
Bank officials attributed the decline to a stagnant business environment due to political upheavals and widespread disruptions across the country.
Protests, curfews and internet blackouts, which took place amid student-led mass uprising in July, disrupted operations and fuelled economic uncertainty.
The movement led to the ousting of Sheikh Hasina from the country on August 5.
Therefore, credit demands declined as businesses took a wait-and-see policy, bankers said.
Besides, persistent inflation, rising lending rate and poor loan recovery weighed on the credit growth, they 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 of 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 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. The BB raised the policy rate to 10 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 120 from Tk 90 against the US dollar within a couple of years.