Private sector credit growth has sunk to an 11-year low. According to latest statistics, credit growth stands at 9.83 per cent in December 2019. Banks are not interested to provide loans to those who want to take additional loans.
On the contrary, people who the banks want to provide loans don’t need that at the moment.
If the private sector loans go down, the investment and trade and commerce also decrease. As a result, the employment opportunities and income of general people fall.
Association of Bankers Bangladesh (ABB) former chairman and Mutual Trust Bank managing director Syed Mahbubur Rahman said, “In fact there is no demand of loans now. New investment is not coming in those sectors where the credit growth was well in the recent times.”
Situation of credit growth
Scenario of bank deposit and credit growth is changing year after year. In 2017, the interest rate went down as liquidity in banks increased a lot.
However, there was a crisis in disbursing bank loans in 2018 as the deposit fell. At that time, under the pressure of banks, Bangladesh Bank extended time to adjust Advance Deposit Ratio (ADR).
In November of 2018, deposit growth was 8.64 per cent, but credit growth was over 14 per cent. Just after one year, deposit growth was 12.89 per cent and credit growth fell to 10 per cent.
The total amount of credit in the private sector stood at Tk 10,530 billion in December 2019, which is 9.83 per cent higher than that of the corresponding period of the previous year.
Bank loans continuously increase in a growing economy. In 2009-10, credit growth was over 24 per cent. Since then, credit growth was over 10 per cent annually. Even it exceeded 25 per cent.
However, government loans have increased significantly. The government loans stood at Tk 500 billion between 21 January 2020 and July 2019. The government targeted to take loans of around Tk 470 billion in the entire fiscal year.
Why credit low
Businessmen, who are good borrowers to the banks, are not taking loans due to higher interest rate, little demand of commodities in local market and slowdown in export.
In the first six months of the 2019-20 fiscal year, the export earning decreased by 6 per cent. In the first five months, the import has decreased by about 5.26 per cent. Inflation is also on the rise. General people are under pressure due to price hike of essentials.
Speaking to Prothom Alo, ACI group chairman Anis Ud Dowla mentioned five reasons for the decrease of credit growth. They include higher interest rate, default loans and decrease of demand in local market.
He also said top business groups expanded their businesses in last ten years. Now they are focusing on sustainability, he added.
In its business situation in the first quarter of 2019-20, leading business group ACI mentioned that its business expenditure increased to 38 per cent (Tk 1.04 billion).
ACI is the sufferer due to the increase of interest rate. A finance officer of ACI claims that their average interest rate was about 8 per cent two years ago. But now they have to take loans at 12 per cent interest or more.
Dhaka Chamber of Commerce and Industry (DCCI) president Shams Mahmud said businessmen have so far mainly focused on increasing production capability. Now they are concentrating on increasing productivity and sustainability.
What is the solution
Huge amount of money has been invested in cement, textile, ceramic, pharmaceutical and jute sectors. These sectors are now overburdened with additional productivity. The profit of the investors has decreased.
How will the investment increase? Who will invest?
Non-government research organisation Centre for Policy Dialogue (CPD) research director Khondaker Golam Moazzem said investment has to be made in new products and technology. It requires new entrepreneurs. Investment has to be made in small and medium industries and foreign investment has to be raised.
But the problem is that banks do not give loans to the new entrepreneurs.
He said the investment limit has to be set to encourage the small and medium entrepreneurs. As a result, the big investors cannot invest in those sectors, he added.
The capacity of the small and medium entrepreneurs will grow.
Moazzem said the economic zones have to be made suitable for setting up factories to attract foreign investment.
According to primary estimation of United Nations Conference on Trade and Development (UNCTAD), foreign investment has decreased in Bangladesh in 2019. A total of $3.4 billion foreign investment has come in during this period, which is 6 per cent less than that of the previous year.
*This report, originally published in Prothom Alo print edition, has been rewritten in English by Rabiul Islam.