Private-sector credits remain on a slide -- official calculations showing a growth contraction to 9.95 per cent year on year in January -- which economists say could indicate slowdown in corporate activity.
Apart from central bank's tightening in monetary policy to combat soaring inflation, a wait-and-see stance by businesses in election time is also seen as a decelerator.
The fall, which followed a 10.13-percent growth in December 2023, was ostensibly attributed to banks becoming more cautious and private borrowers losing fund appetite particularly in January when the country's 12th parliamentary election took place, officials and bankers said.
According to the latest data of Bangladesh Bank (BB), the outstanding balance of private-sector credits stood at Tk 1.57 trillion in January 2024 against Tk 1.43 trillion recorded a year ago.
The January credit-growth figure almost reached the BB projection of 10 per cent by June this year.
The credit flow had been on the upturn since early FY23, reaching 14.07 per cent in August. However, the trend reversed thereafter, with figures having fallen to 9.82 per cent, 9.75 per cent and 9.69 per cent in July, August and September in 2023.
In the subsequent months, the credit growth was 10.09 per cent and 9.90 per cent in October and November in the just-past calendar year, according to Bangladesh Bank data.
A central bank official, requesting anonymity, pointed out various factors contributing to the credit squeeze, including the central bank's belt-tightening measures to safeguard foreign-exchange reserves and control inflationary pressures amid price spirals.
The official said trade financing, which constitutes around 40 per cent of the total funds flowing into the private sector, was notably impacted by BB's strict monitoring of import-related banking activities, as evident in the private-sector credit data.
Managing Director and CEO of Mutual Trust Bank Limited (MTB) Syed Mahbubur Rahman feels corporate slowdown under the ongoing volatile macroeconomic situation -- locally and internationally. Private-sector players are not showing that much interest in undertaking new projects or expanding their businesses, he says.
"And January was the month when the general election took place. In the election time, both banks and private entrepreneurs generally become more cautious in allowing or getting loans. This is probably one of the major reasons," he adds.
As the stock of foreign currencies keeps improving in recent times, the experienced banker holds hopes that the opening of LCs would get eased in the months ahead.
Seeking anonymity, a senior executive of a private commercial bank said offshore financing experienced a sharp decline by almost 50 per cent across banks.
"And the situation is almost the same for other banks. These are probably the reasons behind the poor disbursement of credit to the private sector."
Apart from the election-centric uncertainty, founding chairman of the Policy Exchange Bangladesh Dr Masrur Reaz points out a downturn in demand for credit by the private sector which has continued for more than a year now due to various factors, like LC compression amid forex dearth.
And it disrupted the supply of raw materials for the manufacturing sector. On the other hand, production of the highly gas-intensive sectors, particularly textiles, got badly hampered because of the gas rationing in the industrial hubs.
As a result, the economist says, the industrial bases are struggling to ensure optimum level of production. "So, the demand for credit, starting from the trade financing to working-capital financing, slowed down, which is not a good sign for the economy at all."
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