Growth of private sector credit a must

The persistent decline in private-sector credit growth has emerged as one of the most pressing economic challenges confronting the government. According to the latest data available up to March, formal credit growth to the private sector fell to a historic low of 4.72 per cent, signalling a worrying slowdown in economic activity and investment momentum. Such an unprecedented contraction in investment lending reflects both the growing caution among banks amid mounting non-performing loans (NPLs) and the waning appetite of private borrowers facing an increasingly difficult business environment. Factors such as the ongoing energy crisis, high lending rates, exchange-rate volatility and a taxation regime widely viewed as unfriendly to investment have collectively undermined business confidence. Data from the Bangladesh Bank (BB), available since 2003, indicate that private-sector credit growth has never declined to such a level, even during earlier episodes of financial turbulence. The central bank reports that credit growth dropped to 4.72 per cent by the end of March, following another record low in February 2026. In reality, private-sector credit expansion has remained in single digit since August 2024, underscoring prolonged sluggishness in the largely private-sector-driven $460 billion economy.

      As demand for private-sector loans continues to weaken, commercial banks have increasingly shifted their focus towards government securities, including treasury bills and bonds, which offer relatively secure returns amid prevailing economic uncertainty. For many banks, investment in government instruments has become a safer and more profitable alternative to expanding risky loan portfolios. Several stronger banks have reportedly posted improved earnings primarily through returns on government securities rather than through traditional lending activities.

Business leaders and economic analysts warn that the economy may be drifting towards stagflation - a situation characterised by slowing growth, stagnant job creation and persistently high inflation. They argue that weak appetite for new industrial investment, compounded by economic uncertainty and acute liquidity shortages in the banking sector, has significantly curtailed lending capacity. The sustained decline in credit flow to productive sectors threatens to reduce imports of capital machinery, constrain manufacturing output, and ultimately hinder the country's broader economic recovery during the current fiscal year. Concerns have also been raised regarding the lack of clear policy direction from the central bank in addressing prevailing economic challenges. Bankers point out that lending decisions are heavily influenced by policy predictability, particularly with regard to interest rates, exchange-rate management, and inflation trends. Before approving financing for new business ventures, banks must assess the broader macroeconomic environment, borrowing costs, and the likely movement of the US dollar. Under current conditions, lending has become increasingly risky and uncertain.

What appears crucial at this juncture is a coherent and confidence-building policy response from both the government and the central bank. Restoring investor confidence will require measures to improve the overall investment climate, ensure policy consistency and reduce operational bottlenecks facing businesses. Without timely and effective interventions, the continued stagnation in private-sector credit may further weaken economic recovery prospects and deepen existing vulnerabilities of the economy.