Growth in credit flow to pvt sector keeps falling

FE Team | Published: May 12, 2013 00:00:00 | Updated: February 01, 2018 00:00:00

Siddique Islam The growth in credit flow to the private sector kept falling in the recent months as political turmoil is affecting badly the country's overall economy ahead of the next general elections, officials and bankers said. The private sector credit growth came down to 12.72 per cent in March last from 13.96 per cent in February, the previous month. The growth rate was 14.83 per cent in January of the current calendar year (CY). "The ongoing political unrest is the main cause of the fall in growth of credit flow to the private sector," a senior official of the Bangladesh Bank (BB) told the FE Saturday. He also said most commercial banks became now cautious about sanctioning fresh loans due mainly to the recent loan scams that rocked the banking sector. "The banks are now very cautious about sanctioning any fresh loans to avert financial risks." The credit flow to the private sector fell to Tk 492.32 billion in March from Tk 630.46 billion in the corresponding period of the previous CY, according to the central bank statistics. "We cut our policy interest rates few months back to encourage credit flow to the private sector," the BB official said. The commercial banks were following the BB indication by slashing their interest rate spread, he added. The interest rate spread of the commercial banks came down to 5.05 per cent in February last from 5.13 per cent in January 2013, the BB data showed. Earlier on January 31 last, the central bank slashed its interest rates on repurchase agreement (repo) and reverse repo by 50 basis points after nearly four years. It was aimed to boost fresh investments, particularly in the productive sectors. The interest rate on repo auction came down to 7.25 per cent from 7.75 per cent while the interest rate on reverse repo was re-fixed at 5.25 per cent from 5.75 per cent. The revised interest rates on both repo and reverse repo came into effect from February 1. "The ongoing monetary policy is now on the right track. But the political turmoil is hitting the country's overall economy including credit flow to the private sector," the central banker said. The BB in its existing monetary policy has revised its monetary programme. The target of growth in credit flow to the private sector has been raised to 18.50 per cent for the January-June period from 18.0 per cent of the previous programme. The central banker also said the downward trend of growth in the private sector credit flow might continue until the prevailing political tensions ease. Echoing the BB official, a senior official of a leading private commercial bank said the declining trend of private sector credit might continue in the months to come due mainly to the ongoing political tensions. "Most of the entrepreneurs are watching the current political situation closely. They are following a 'go-slow' policy in making fresh investments to avert any financial risks," the private banker said. "Some banks are still showing reluctance to purchase inland bills after the Hall-Mark loan scam," the banker said. Such unwillingness also contributed to the fall in credit flow to the private sector, he added. Talking to the FE, another private banker said lower import payment and an upward trend of loan default contributed to the sluggish private sector credit flow. Now the corporate entities are allowed to take loans from overseas sources. It also slowed down the credit flow to the private sector, he added.