Bangladesh News

Growth of credit flow in the banking sector has decreased significantly in the first five months of this year despite no contraction measures taken by the central bank.

Bangladesh Bank (BB) data shows credit flow increased by only one percent during January to May, while the increase was 9 percent in January-June last year.

“We’re witnessing a declining growth of credit flow from the banking sector that means we may not have to impose any specific measures to check the flow,” said a central bank official.

Explaining the unusual decline, officials of different commercial banks said entrepreneurs are in apprehension about investment as the country is going through a state of emergency.

“People did not take loans from banks during the first few months after the present government came to office. They were in fear. The situation has improved slightly only in recent days,” said an official of a nationalised commercial bank (NCB).

He said the NCBs have been witnessing negative growth of credit flow since January.

The branch manager of a private commercial bank cited an example of three aspiring clients and said, “They had applied for loans, but are now taking time and may be observing the overall political situation.” He said the investors do not want to take any risk.

The BB released six-month monetary policy early this month that had hinted to increase the rate of SLR (statuary liquidity requirement) and CRR (cash reserve ratio) in an apparent bid to reduce private sector credit flow.

The BB has set a target to keep growth rate of domestic credit within 13.5 percent and private sector credit within 14.5 percent in the current fiscal year.

On July 23, the central bank at a meeting of Fiscal Coordination Council suggested that the government should minimise its bank borrowing.

The BB data also shows an overall picture of current credit flow of the banking sector. The data shows that credit growth to the private sector in July-May period in the last fiscal year was 15.57 percent, which was 17.05 percent in the corresponding time of FY 2005-06.

Domestic credit rose by 16.25 percent in July-May in last FY and the increase was 21.61 percent during the same period of FY 2005-6.

Of the total domestic credit, the public sector share is about 26 percent.

The credit flow of four NCBs has decreased by 2.7 percent in January-May period of the year, but the picture was totally different last year. The credit flow of the NCBs increased by 3 percent in January-June in 2006.

The credit flow of 30 private commercial banks (PCBs) has increased by 3.6 percent in January-May this year, while the increase was 11.8 percent in January-June last year.

The flow of nine foreign commercial banks (FCBs) increased by 4.6 percent in January-May, which witnessed 13 percent growth in January-June last year.

The government-owned five specialised banks’ credit flow decreased by 0.3 percent in the first five months against a 7 percent increase in January-June last year.