`Credit flow to pvt sector falls further in Oct

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Siddique Islam Credit flow to the private sector declined further in October, 2011 due to lower amount of trade financing by the commercial banks. The rate of private sector credit growth came down to 21.46 per cent in October 2011 from 21.98 per cent of the previous month in the current calendar year, according to the central bank statistics. "Trade financing has been on the decline in the recent months because of short supply of the US currency in the market," a senior official of a leading private commercial bank (PCB) told the FE Wednesday. The local currency has been under pressure, leading to its recent depreciation against the US dollar mainly due to higher demand for the greenback for settlement of outstanding letters of credit (LCs). He also said most commercial banks disbursed loans cautiously during the period, mainly because of adjustment of their credit-deposit ratio (CDR) in line with the directives of the central bank. The Bangladesh Bank (BB) has already set CDR at 85 per cent for conventional banks while in Sharia-based Islamic banks, it remains at 90 per cent as the safe limit. At least 12 banks, out of a total of 47, have exceeded their CDR limit for credit disbursements on October 24 last, the BB data showed. "The private sector credit growth may decline further in the coming months as the BB has increased its policy interest rates recently," a central bank official said. The credit flow to the private sector increased by 21.46 per cent to Tk 630.63 billion in October last on a year-on-year basis from Tk 624.31 billion during the corresponding period of the previous year, the BB data showed. The central bank has used different monetary instruments including increased interest rates on repurchase agreement (repo) and reverse repo, aiming to help contain the current inflationary pressures, the BB official said. "We'll use our monetary tools in line with the existing monetary policy statement (MPS)," he said without elaborating. In its latest half-yearly MPS, the central bank stated that it would aim at containing inflationary pressures through discouraging credit flow to unproductive sectors and for speculative purposes including real estates and investments in stock market, beyond affordable limits. Under the new monetary programme, credit growth rate to the private sector will be limited to 18 per cent by the end of fiscal year (FY) 2011-12 from an estimated level of 25.5 per cent in June last.