Credit flow expansion to pvt sector declines

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Siddique Islam The expansion of credit flow to the private sector declined slightly in August last due to selective banking operations by the commercial banks. The commercial banks also disbursed loans cautiously during the period due mainly to adjustment of their credit-deposit ratio (CDR) in line with the directives of the central bank, officials said. The rate of private sector credit growth came down to 23.19 per cent in August 2011 from 24.36 per cent of the previous month in the current calendar year, according to the central bank statistics. "The credit flow to the private sector fell slightly in the month of August due to CDR adjustment by the commercial banks," a senior official of the Bangladesh Bank (BB) told the FE Thursday. On February 20 last, the central bank set June 30 as deadline for bringing down the CDR of the commercial banks to a 'reasonable' level. Under the directives, 19 conventional commercial banks brought down their CDR to 85 per cent and five Sharia-based Islamic banks, to 90 per cent within the timeframe set by the BB. "The private sector credit growth may decline further in the coming months as the central bank has increased its policy interest rates recently," the BB official added. He also said the central bank increased its policy interest rates twice during the current fiscal year aiming to help contain inflationary pressures. "We've used our monetary instruments to lower the inflation rate," the central banker said without elaborating. The credit flow to the private sector increased by 23.19 per cent to Tk 650.575 billion in August last on a year-on-year basis from Tk 576.219 billion during the corresponding period of the previous year, the BB data showed. "We've followed selective banking instead of 'mass banking' during the period under review, in line with the BB's latest monetary policy statement (MPS)," a senior official of a leading private bank told the FE. He also said most private commercial banks are now discouraging investments in less productive sectors including consumers' credit. 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 (FY12) from an estimated level of 25.5 per cent in June last. The government has also taken a number of supportive steps to stabilise the prices of commodities, expecting to bring down the rate of inflation to 7.50 per cent on an annual average basis by the end of this fiscal.