Credit flow to the private sector continues to plummet as commodity prices cool off in the international market which, officials said, is a sign of easing inflation.
The growth in private sector credit came down to 21.77 per cent in December from 24.31 per cent in November last, according to the central bank statistics. Such loans have shrunk since October last after peaking at 26.55 per cent in September.
"The trend is not an indication of contraction in the overall economy. Rather, it will help curb inflationary pressure on the economy," Chief Economist of Bangladesh Bank (BB) Mustafa K Mujeri told the FE Thursday.
Both exporters and importers are now maintaining a 'wait and see' policy to avoid any financial risk following declining trend in prices of essential commodities in the international market, senior bankers said.
Demand for trade financing has been almost halved due to fall in the prices of commodities in the global market, which was mainly responsible for reduction in the flow of credit to the private sector, they added.
"Everybody is observing the overall market situation before taking a decision on fresh investment," Chairman of the Association of Bankers Bangladesh (ABB) K Mahmood Sattar told the FE Tuesday while explaining the declining trend in private sector credit.
Mr. Sattar, who is also managing director and chief executive of the City Bank Limited, said the existing trend in private sector credit may continue during first quarter of this year.
"We expect the private sector credit to increase during second quarter (March- June) of this year," he said without elaborating.
The credit flow to the private sector increased by 21.77 per cent to Tk 365.67 billion in December last on a year-on-year basis from 16.82 per cent or Tk 241.78 billion of the corresponding period of the previous year, the Bangladesh Bank (BB) data showed.
In October last, the private sector credit growth came down to 24.72 per cent from 26.55 per cent in September last, they added.
Under the BB's existing monetary programme, growth of credit to the private sector will come down to 18.5 per cent in June from the existing level.
On January 14 last, the central bank unveiled its second half-yearly monetary policy slashing the growth of credit to the private sector for curbing inflationary pressure on the economy.
Under the new monetary policy, credit flow to the productive sectors like agriculture and small and medium enterprises (SMEs) will be encouraged while credit flow to less productive sectors like consumer goods will be discouraged.
"We've already asked the commercial banks to follow the latest monetary policy stance for disbursement of fresh credit during the second half of this fiscal," a BB senior official told the FE.
He also said the central bank has advised the bankers to discourage the flow of fresh credit into less-productive sectors aiming to curb inflationary pressure on economy.
"We have not used any tool to squeeze the credit flow to the private sector," the BB official said, adding that the central bank has already asked the banks to select good borrowers to avoid credit risk in the face of the global financial crisis.
Private sector credit flow ebbing
Siddique Islam | Published: February 25, 2009 00:00:00 | Updated: February 01, 2018 00:00:00
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