Pvt sector credit growth hits 9-year low

The private sector credit growth hit a nine-year low in August this fiscal year (2019-2020) amid liquidity crisis in the banking sector along with the advance deposit ratio adjustment-centric cautiousness of a section of the banks.

In August, the private sector credit growth dropped to 10.68 per cent, the lowest after September, 2010, when it was 6.09 per cent, according to the Bangladesh Bank data available.

In the first two months (July-August) of FY20, the growth rate remained far below than the central bank’s curtailed estimation — 14.8 per cent — for the current fiscal year.

The private sector credit growth was 11.26 per cent year-on-year in July of the current fiscal year. The growth rate in July was the lowest after June, 2013 when it was 11.04 per cent.

Policy Research Institute executive director and BRAC Bank chairman Ahsan H Mansur on Wednesday said, ‘Two factors contributed to the slump in the private sector credit growth and would ultimately hamper economic growth.’

Firstly, the liquidity crisis in the banks due to a slow deposit growth, he said, adding that of the deposits available, reputed banks were getting the lion’s share, leaving a tiny share for the other banks and causing subsequent liquidity shortage in those banks.

Secondly, the large banks have become very much cautious in issuing credit, he said.

Besides, the government’s special facility for the loan defaulters with 10 years of repayment facility with just 2 per cent down payment has prompted ‘good borrowers’ to refrain from regular installment payment, making the situation in the country’s banking sector more grave, Mansur said.

Officials of the banks said that many of the banks had been suffering higher advance-deposit ratio (investment-deposit ratio for the Shariah-based banks) since January 30, 2018 when the central bank curtailed the ratio to 83.5 per cent for the conventional banks and 90 per cent for the Shariah-based banks.

Containing aggressive lending of the banks was the reason for the central bank’s move. Earlier, the ratios were 85 and 90 for the conventional and Shariah banks respectively.

Out of the 56 scheduled banks, around 20 banks had suffered higher ADR than the BB limit set on January 30, 2018.

Since then, the banks with higher ADR have been trying to bring down their exposures within the BB-set limit by the way of deducing lending and some of them even opted to refrain from increasing their loan portfolio.

Enhancing deposit portfolio by collecting deposits was among the other strategies followed by the banks in complying with the BB-set limit.

Apart from the 20 banks, several other banks were barely within the ADR limit that forced them to become cautious in issuing loans.

Initially, the BB instructed banks to comply with its January’s instruction on ADR by June 30, 2018, but in two phases extended the deadline to September 30 this year, taking into consideration the instability surfaced in the banking sector for complying with the lowered ADR.

Taking the situation into consideration, the BB in September backtracked on its stance and restored the previous ADR limit in September 17 this year, 13 days before the deadline.

Besides the ADR-centric cautiousness of the banks, a fall in import of capital machinery and industrial raw materials in recent months was indications of stagnant investment state in the country.