Private credit growth slows

Credit growth to the private sector slowed to 9.9 percent in November as appetite for loans from businesses waned amid rising interest rate, sustained high inflation, and banks' focus on attracting more deposits during the final months of the year, according to bankers.

In October, credit flow to private business grew 10.09 percent, the highest in the current fiscal year 2023-24, data from the Bangladesh Bank (BB) showed.

"Demand for credit has reduced due to high inflation and rising interest rate. It seems that people have become selective. They have become conservative and are thinking twice," said Md Mahiul Islam, deputy managing director at BRAC Bank.

Official data showed that inflation, which has remained persistently high since June 2022, averaged 9.42 percent in November.

To contain rising prices, the central bank began to tighten the money supply by introducing the Six-month Moving Average Rate of Treasury bill (SMART) and lifted the cap on the interest rate offered by banks on loans to let the rate reflect the market reality.

As such, the interest rate on deposits and loans has been increasing since July in line with the spike in SMART due to the liquidity crunch in the banking sector.

Banks can charge up to 3 percent as margin on the SMART on loans. In case of consumer credit as well as cottage, micro and small and medium enterprises, banks can take up to one percent as a fee to cover supervision costs.

Islam said the cost of loans had risen. Besides, people in general have become cautious ahead of the general election, he added.

Sheikh Mohammad Maroof, additional managing director & head of business at City Bank, said the slowdown in credit growth to private sector was not significant.

"But it reflects slowing amid rising interest rate. Besides, private sector credit flow usually slows in the final months of a year. Banks give higher focus to deposits, reduction of non-performing loans and annual book closure during this period," he said.