Pvt sector credit growth records slight increase

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Siddique Islam
The private sector credit growth increased slightly in the first month of the current fiscal year due to rising prices of essential items in the global market.
Credit flow to the private sector recorded a growth of 24.75 per cent to Tk 543.34 billion in July 2010 on a year-on-year basis compared to 24.24 per cent or Tk 528.33 billion over that of the previous month, according to the central bank statistics.
"Private sector credit growth increased during the period mainly due to the rise in financing productive sectors like small and medium enterprises (SME), agriculture and trade," a senior official of the Bangladesh Bank (BB) told the FE Saturday.
He also said recovering world economy with high prices of essentials including petroleum products, edible oil and wheat in the global market has pushed the flow of credit to the private sector.
The country's overall imports grew by nearly 39 per cent in the first two months of the current fiscal, a jump by over 392 per cent increase in import of food grains.
Letters of credit (LCs) against imports worth US$4.504 billion were settled during July-August period of fiscal 2010-11 (FY10) compared with $3.248 billion of the corresponding period, the BB data showed.
The BB official also said the upward trend in the disbursement of private sector credit may continue in the next couple of months to meet the growing credit demand, particularly form apparel sector.
Besides, capital market investment by some commercial banks and non-banking financial institutions (NBFIs) has contributed to the overall credit flow to the private sector, the central bank officials said.
"Some of the banks and NBFIs have invested a substantial amount in the capital market that has also fueled to the inflationary pressures on the economy," a senior official of a leading commercial bank said.
The central bank has already identified 11 private commercial banks, which have exceeded shares holding as well as exposure limits, another BB official said adding that these banks will have to bring down their holdings and exposures within the prescribed limit by next month.
The overall private sector credit growth has pushed partially the country's inflation as measured by the consumer price index recently although the central bank as well as the government has taken different measures to curb the inflation, bankers and experts said.
"The BB has taken a number of measures to contain inflationary pressures on the economy but it will take more time to get positive outcome," the central bank official noted.
Under the measures, the BB raised the cash reserve requirement (CRR) by 0.5 percentage points to 5.5 per cent for the commercial banks on May 5 last for curbing inflationary pressure on the economy.
On August 19 last, the central bank increased its policy interest rate by 1.0 percentage point aiming to contain inflation.
The interest rate on repurchase agreement (repo) was re-fixed at 5.50 per cent on August 19 from 4.50 per cent while the reverse repo rate was increased to 3.50 per cent from 2.50 per cent.