Credit growth rises to 10.35pc in May amid liquidity crisis  

Latest Bangladesh Banks data shows credit growth has increased to 10.35 percent in May from 9.9 percent in April. It was 10.49 percent in March, 9.96 percent in February, 9.95 percent in January and 10.2 percent in December last (2023).
The growth may slightly increase in June due to increased import activities during Eid-Ul-Azha, one of the largest religious festivals of the Muslims celebrated on June 17 across the country.
However, credit growth remains poor considering the countrys development growth and size of the GDP. It has been hovering around 10 percent since June 2023.
The central bank adopted a new interest rate in July last year, which raised the lending rate to nearly 13 percent until May. On May 8, the central bank left interest rate determination to be market based, which pushed up the lending rate further.
The high lending rate may discourage businesses from borrowing from the banking sector. In addition, the banking sector has been grappling with an acute liquidity crisis.
The central bank continued its foreign currency sales, which acted as automatic quantitative tightening measures, significantly absorbing liquidity from the system.  Over the past 36 months, the central bank has sold approximately $34 billion from its reserves to banks.
Moreover, the banking sectors loan disbursement capacity also diminished due to high default loans, deposit withdrawals by clients and ongoing economic challenges.
Many banks are now facing a cash crisis and have sought assistance from the central bank and larger banks to meet their daily cash needs, bankers said.
Responding to this, the central bank lowered the private sector credit growth target to 10 percent for January-June of the 2023-24 financial year, down from the previous target of 11 percent.
This adjustment reflected concerns over reduced interest from private sector investors, driven by higher borrowing costs, ongoing global and domestic economic uncertainties, liquidity constraints within the banking sector and the implementation of a contractionary monetary policy.
Economic challenges such as high inflation, foreign exchange volatility, dollar shortage and energy crisis have further dampened business activities, making businesses hesitant to seek bank loans.