Turmoil leads to fall in pvt sector credit growth

Declining trend in the private sector credit growth continued until September last due mainly to the ongoing political turmoil centering the next general election, officials said.
The rate of private sector credit growth came down to 11.07 per cent or Tk 465.118 billion in September last from 11.33 per cent or Tk 469.587 billion in August 2013. The rate was 19.88 per cent or Tk 696.620 billion in September 2012.
 "The private sector credit growth has continuously decreased in the recent months because of political uncertainty ahead of the next general election and availability of overseas loan at lower interest rates," a senior official of the Bangladesh Bank (BB) told the FE Sunday.
He also said the central bank has already advised the commercial banks to expedite credit flow to the private sector for achieving maximum economic growth.
Earlier on August 25 last, the BB advised the senior bankers at a meeting for taking necessary measures to boost disbursement of credit flow to the private sector for sustaining the existing economic growth.
Senior bankers, however, predicted that both operating and net profits of the commercial banks might fall by the end of this calendar year following lower credit growth in the private sector.
"We're now trying to boost our investment in different sectors, particularly small and medium enterprises (SME) and agriculture, aiming to strengthen the financial inclusion programme in Bangladesh," Mohammad Abdul Mannan, managing director and chief executive officer of the Islami Bank Bangladesh Limited (IBBL), told the FE.
He also said declining trend in import payments has also contributed to lower credit growth in the private sector.
Opening of letters of credit (LCs) against imports, generally known as import orders, dropped by 11.23 per cent to US$ 2.79 billion in October last from $ 3.15 billion of the previous month, according to the BB statistics.
On the other hand, the settlement of LCs, generally known as actual imports, decreased by more than 8.00 per cent to $2.84 billion in October 2013 from $ 3.09 billion in September last.
"Most of the corporate clients are watching the current political situation closely. They are following a 'go-slow' policy in making fresh investments to avert any financial risks," the IBBL CEO explained.
Besides, some corporate entities are adjusting their local loans with foreign ones at lower interest rates, according to the bankers.  "Such a situation has also contributed to decrease in the credit growth to the private sector in the recent months," Helal Ahmed Chowdhury, managing director and chief executive officer of the Pubali Bank Limited, told the FE.
He also said uncertainty is not favourable for economic activities, with the result that the private sector credit growth is not increasing.
 "However, we're optimistic that the situation will change favourably," he noted.
He also said rising trend of non-performing loans (NPL) and reducing private sector credit growth will affect the profitability in the country's banking sector by the end of this calendar year. The amount of classified loans in the country's banking system reached Tk 567.20 billion at the end of third quarter of this calendar year, which is nearly 13 per cent of the total outstanding loans.
However, the volume of classified loans marked a rise by more than 8.0 per cent or Tk 44.10 billion in the July-September period of 2013 over that of the previous quarter. It was Tk 523.09 billion three months back, the BB data showed.