Reviving Private Credit: The Next Step towards Stronger Growth

The real challenge now is confidence. Many entrepreneurs are delaying investment decisions. High lending rates over the past year increased business costs. Energy and gas shortages affected industrial production. Import of capital machinery remained weak as many companies postponed factory expansion. Businesses also waited for greater stability in inflation and the exchange rate before making new investments.

The latest Bangladesh Bank data shows that outstanding loans to the private sector increased to around Tk 18.26 trillion in June from Tk 17.48 trillion a year earlier.

However, there are reasons for cautious optimism. Inflation has started easing compared with last year’s peak. Foreign exchange reserves have become more stable than before. The pressure on the exchange rate has moderated. Bangladesh Bank has continued purchasing dollars from the market at different times, indicating improving foreign currency supply. 

These developments reduce uncertainty for businesses and improve planning for future investment. The central bank has also strengthened banking sector reforms. Asset quality reviews, stronger supervision, bank resolution measures and governance reforms aim to rebuild confidence in the financial system. Healthy banks are better able to finance productive businesses.

At the same time, the recent reduction in the policy rate sends an important message. Monetary tightening has largely achieved its objective of slowing inflation. The focus can now gradually shift towards supporting investment and economic expansion without compromising price stability. 

Nevertheless, policy support alone cannot immediately increase borrowing. Business confidence takes time to recover. Entrepreneurs first want stable energy supplies, predictable business policies, easier imports of industrial machinery and steady consumer demand. Once these conditions improve, loan demand is likely to return naturally.

Commercial banks should also continue supporting productive sectors such as manufacturing, agriculture, export industries, SMEs and technology. Lending decisions should remain prudent, but viable businesses should receive faster access to finance. Good borrowers should never be discouraged because of problems created by a few weak borrowers.
Equally important is maintaining financial discipline. Reducing non-performing loans, improving governance and strengthening risk management will increase public confidence in the banking system and create more room for sustainable lending.

Bangladesh has demonstrated remarkable resilience over the past decades. The country successfully recovered from global financial shocks, the pandemic and external inflationary pressures. Today’s slowdown in private credit should therefore be viewed as a temporary challenge rather than a permanent weakness.

The encouraging sign is that many supporting factors are gradually moving in the right direction. Inflation is easing. Liquidity has improved. Bangladesh Bank has begun providing policy support for recovery. Banking reforms are progressing. If these positive developments continue and businesses regain confidence, private credit growth is likely to strengthen in the coming months.

The next phase of economic recovery will depend less on the availability of money and more on the willingness of businesses to invest. Money is increasingly available. Confidence now needs to catch up. 

The latest private credit figure of 4.47 per cent should therefore be seen as a reminder that recovery is still incomplete, not as a reason for pessimism. Bangladesh has already taken several important policy steps. If these reforms continue alongside stable macroeconomic management, better energy supply and stronger investor confidence, bank lending can regain momentum.

A stronger flow of private credit will mean more factories, more investment, more jobs, higher production and faster economic growth. That is the direction Bangladesh now needs to move. The foundation has largely been prepared. The next task is to convert policy support into business confidence and business confidence into fresh investment. Only then will today’s weak credit numbers become the starting point of tomorrow’s stronger and more sustainable economic growth.