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Private credit rises on falling rates

The credit growth is still far below BB target

Saijadur Rahman
Declining interest rates boosted private-sector credit growth in the past several months, but the growth still remains far below the central bank’s target.
Private sector credit accelerated 12.3 percent in June this year, up from 11.4 percent in the previous month and 10.8 percent in June a year ago, according to Bangladesh Bank data.
Though the June credit growth was the fastest in fiscal 2013-14, it is well below the BB-set target of 16.5 percent.
"We offer loans at a 12 percent interest rate for good bor-
rowers. The rates go down further for the borrowers with good track records and healthy turnover," said Helal Ahmed Chowdhury, managing director of Pubali Bank.
Chowdhury said a fall in lending rates has led to the credit growth in recent months and the demand for money is increasing gradually. Pubali offered loans at 15-16 percent interest last year, he said.
He expects a further rise in the private credit demand at the end of the September quarter.
Many bankers said manufacturing and productive activities are yet to pick up to the level of 2011-12, but trade and commerce and services sectors and an overcrowded domestic market have kept the economy going.
The year-on-year export growth for fiscal 2013-14 was 11.56 percent, which they said was better than expectations. Overall exports, including shipments of garments, also increased, indicating that the economy is showing some signs of recovery.
Private sector credit growth was 10.7 percent in February that rose to 11.5 percent in March, 11.9 percent in April, and 11.4 percent in May, according to BB data.
"The demand for money is going up slowly due to a stable political situation in the country in the last six months," said Shafiqul Alam, managing director of Jamuna Bank. He said competition among banks also caused the lending rates to fall.
Alam, however, said a rise in nonperforming loans has made banks more cautious in lending.
Some bankers said a surge in low-cost loans from foreign
sources has affected the local lenders.
The central bank approved foreign loans worth around $2.6 billion in fiscal 2013-14, while the amount was $2.4 billion in fiscal 2012-13 and $1.8 billion in fiscal 2011-12.
On the negative impacts of foreign loans on the local lenders, a BB official said foreign loans, which are low-cost (around 6 percent interest rate) in nature, plays a role in increasing competitiveness of local products in the global markets.
However, Monzur Hossain, senior research fellow of Bangladesh Institute of Development Studies, is not of the view that the private sector's demand for credit is picking up steadily.
He blamed the central bank's contractionary monetary policy for a sluggish investment situation in the country.
"Maybe, the demand for money has grown slightly in recent months due to relaxation of rules for consumer loans," Hossain said.