Inflationary pressure: High spending impacts consumer loans

The people have witnessed a significant rise in household expenses in recent days and having failed to meet the extra expenses, many have dropped a good number of items from the list of their daily necessities.

But some could not shorten the list in view of their social status, rather they are meeting the increased costs with bank loans. It eventually had a bearing on the consumer loans lent out by the banks.

The consumer loans have increased by Tk 170.98 billion in the first nine months (January-September) of the just-concluded year, 2022, when the disbursal of home loans rose by only Tk 6.72 billion. However, the car loans dropped significantly.

Then where did the consumer loans go? The clients withdrew most of the consumer loans in cash, according to the sector-wise credit report of the Bangladesh Bank.

The country witnessed a year-on-year rise of Tk 144 billion in consumer loans in 2021.

According to the bankers, the previous year witnessed a steep hike in all commodity prices, but the lending rate cap remained stuck at 9 per cent. The jobholders did not have to struggle to secure personal loans. It was even easier for the clients with fixed and term deposits in the banks.

The consumers also increased spending on credit cards. More people than ever took out loans as their actual incomes plunged remarkably. It has an adverse effect on consumer credit.

The consumer loan balance of BRAC Bank exceeded Tk 70 billion in the previous year. Mahiul Islam, head of the consumer credit department of BRAC Bank, said their consumer credit grew by about 20 per cent in the previous year. The credit card loans crossed the threshold of Tk 10 billion and the demand is expected to rise further this year.

It was learnt that the consumer credit balance in the banks was Tk 954 billion at the end of 2021 and it stood at Tk 1125 billion after the following nine months in September 2022. The consumer loans grew by Tk 144.13 billion in 2021 while the figure stood at Tk 170.98 billion in the first nine months of 2022.

Most of the consumer loans were spent to purchase land, flats, cars; to maintain credit cards, professional loans, and bear education, health, marriage and travel expenses. Some also took loans against their salaries and deposits.

Of the total consumer loans in 2022, Tk 192.65 was taken to purchase flats and Tk 32.29 billion to purchase cars. Another Tk 77.97 billion was disbursed on the credit card.  

Among the other sectors, the largest amount of loans went to purchase televisions, refrigerators, air-coolers, computers and furniture. It pushed up the consumer loan balance by Tk 56.53 billion.

The remaining amount was withdrawn in cash and seemingly used to meet household or other expenses.  At the same time, consumer loans increased by Tk 46.50 billion against fixed deposit and by Tk 30 billion against salary.

City Bank, a leading consumer loan distributing bank, sanctioned nearly Tk 12 billion as consumer loans, including that of flat and car, in the previous year.

Its consumer loan department chief, Arup Haidar, told Prothom Alo, “We have seen a 15-20 per cent growth in personal loans in the previous year. Nearly Tk 6.5 billion has been disbursed in loan. Also, demand for personal loans was higher than at any other time.”

The banks fared well in disbursing consumer loans, but the non-bank financial institutions did not perform as per the expectation in the previous year.

Khorshed Alam, head of consumer credit department of Lankabangla Finance, told Prothom Alo, “Many consumer credit clients switched to  banks due to low interest rates. As a result, our growth in personal loans has not been good. We, however, registered a good growth in car and credit card loans.”

There was a scope to avoid being defaulter without repaying the loan installments in 2020 and 2021, due to Covid-19 pandemic. The bankers mentioned this scope as one of the key reasons behind the high volume of loans.

The amount of loans disbursed on the credit cards was recorded at Tk 77.96 billion in September last year, when the amount was Tk 69.26 billion in 2021.