Private sector credit growth hit a 57-month low in April this year amid rising liquidity crisis in the country’s banking sector due to poor deposit growth. As per the latest Bangladesh Bank data, the growth dropped to 12.07 per cent in April amid poor growth in deposit. The growth rate in April was the lowest since August, 2014 when it was 11.39 per cent. Private sector credit growth was 12.42 per cent and 12.54 per cent in March and April this year respectively.
Experts expressed their concern regarding the slow private sector credit growth as it might affect the country’s economic growth.
They said that the slow private sector credit growth indicated stagnancy in the private sector investment.
The Bangladesh Bank should have a closer look for understanding the reason for slow credit disbursement to the private sector, they said, adding that the central bank should take measures to get rid of the situation.
The BB statistics showed that the private sector credit increased to Tk 9,87,929.20 crore at the end of April this year from Tk 8,81,510.80 crore at the end of March this year.
Bankers and BB officials said that worsening liquidity crisis in the country’s banking sector ahead of the adjustment of advance-deposit ratio by banks with the BB-set limit was the main reason for the falling private sector credit growth.
Amid a hike in interest rates by banks for fetching deposits, the central bank in March extended the ADR adjustment deadline by six months to September 30, 2019 from March 31, 2019.
As per the BB instruction, conventional banks would have to cut advance (loan)-deposit ratio to 83.5 per cent from 85 per cent and Islamic banks have to maintain IDR (income-deposit ratio) at 89 per cent instead of 90 per cent.
BB officials said that ADR of 22 banks were yet above the specified limit.
Besides the 22 banks, a number of banks were maintaining their ADR or IDR close to the BB-set limit, curbing their capacity to issue new credit to their clients.
Apart from the ADR adjustment-centric liquidity crisis, a slow growth in deposits in the banking sector also lessened banks’ credit disbursement capacity.
Savers’ much interest in the national savings certificates against which the government is offering around 12 per cent interest was also hindering the banks’ deposit collection moves.
Latest BB data shows that deposit growth in the country’s banking sector was 10.86 per cent and 10.52 per cent in April this year respectively after posting 9.41 per cent growth in December last year.
Besides, government’s increased borrowing from the banking sector was another reason that curtailed banks’ capacity to lend to the private sector.
As of May 15 this year, government borrowed Tk 7,998 crore from the country’s banking sector till May 15 this year.
Due to liquidity crisis, banks borrowed Tk 13,475.8 crore from the central bank through repurchase agreement (REPO) in the period between July, 2018 and March 5, 2019 while the entities borrowed Tk 572.86 crore in the entire 2017-2018 fiscal year.
In the fiscal year of 2016-2017, banks’ borrowing though REPO was Tk 115.67 crore.
Huge provisioning requirement against non-performing loans in the country’s banking system was another factor that has been weakening liquidity situation in the country’s banking sector.