Woes of private entrepreneurs compounded with formal-credit flow to the businesses having plummeted by 66 basis points to 9.20 per cent in September as their business-expansion plans get stymied.
Money-market analysts and industry-insiders term such continuous ebb in the demand for credits to private sector -- the motive engine of Bangladesh's economic growth -- a serious setback to the steadily growing economy as the slowdown affects industrialisation growth and employment in the overpopulated economy.
Private-sector players have pinpointed a number of anti-business factors like persisting energy crisis in the industrial belts, central bank's aggressive measures to contain inflation and the looming uncertainty over resumption of business activities after the mass uprising that toppled the Sheikh Hasina government in early August behind the drastic fall in credit appetite of the businesspeople.
Under such unfriendly business climate, the entrepreneurs mostly have postponed their business-expansion plans, as is reflected in the recent trends of the credit flow, according to them.
According to the latest data of Bangladesh Bank (BB), the country's central bank, the growth in credit flow to the private sector dropped to 9.20 per cent in September 2024 on a year-on-year basis from 9.86 per cent a month ago.
It was 0.60-percentage-point lower than BB's projection of 9.80 per cent for the first half (H1) of current fiscal year (FY) 2024-25 in accordance with its latest monetary policy statement.
"Political unrest along with the severe floods at different parts of the country have pushed down the private-sector-credit growth in the last couple of months," a senior official of the central bank told the FE while explaining the falling trend in private-sector-credit growth.
He also said the ongoing trend of private-sector growth may continue in the coming months with the continuation of existing contractionary monetary-policy stance to contain inflationary pressure on the economy.
Sayeed Ahmad Chowdhury, director (operations) at Square Denims Limited, says factory closers, particularly in the apparel and clothing sector, have pushed down credit flow to the private sector.
"A good number of readymade garment (RMG) factories have already been shut down mainly due to labour unrest over outstanding dues and higher wages and salaries amid higher-inflationary regime."
Mr. Chowdhury predicts that the ongoing trend of private-sector credit will continue until December.
President of Bangladesh Chamber of Industries (BCI) Anwar-ul Alam Chowdhury says industrial production has been severely affected because of the persisting energy crisis and ongoing unrest in the industrial belts. "On the other hand, the complete resumption of business activities after the latest mass uprising is still uncertain."
Under such circumstances, he notes, frequent rise in the cost of funds will certainly put the businesses in jeopardy. "I think continuous shrinking of the industries will be the spillover effect of such gradual policy-rate hike," Mr Chowdhury, also chairman of Evince Group, told the FE earlier.
"The local investment climate was not in favour of business during the July-August period," Syed Mahbubur Rahman, Managing Director (MD) and chief executive officer (CEO) of Mutual Trust Bank, told the FE writer while explaining the latest business environment of Bangladesh.
The experienced banker also says apart from political stability, uninterrupted supply of utilities needs to be ensured for improving the country's overall investment climate.
Talking to the FE, a senior executive at a leading private commercial bank said lower trade finance, particularly for import-payment obligations, also contributed to fall in the private credit growth in recent months.
"The demand for credit is low as the business community has maintained a 'go-slow' policy to avert any financial risk," the private banker explains the conundrum in business circles.
Following changeover in state power, entrepreneurs of the country's leading business conglomerates having linked with the Awami League government are on the run or got arrested on various charges, he points out.
Because of the factor, cash recovery of the credits taken by the business groups from the banking system over the years remains a matter of serious headache for the commercial lenders which also squeezes the stock of loan-able funds in banks, the bank executive says.
Meanwhile, the actual import in terms of settlement of letters of credit (LCs) fell by 2.40 per cent to US$16.21 billion during the July-September period of the FY'25, from $16.61 billion in the same period of the previous fiscal year, according to the central bank's latest data.
On the other hand, the opening of fresh LCs, generally known as import orders, dropped by 6.74 per cent to $15.59 billion in the first three months of this fiscal from $16.72 billion in the same period of FY '24.
However, outstanding loans with the private sector rose to Tk 16522.44 billion in September from Tk 16427.03 billion a month before. It was Tk 15130.54 billion in September 2023.
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