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Private sector credit growth falls further owing to liquidity crisis

  • Published at 10:38 pm May 9th, 2019
Addressing the liquidity crunch
There could be a crisis Bigstock

Banking sector faces huge liquidity crisis leading to shortage of greenbacks to meet import payments

Private sector credit growth has fallen further in March, owing to liquidity crisis faced by commercial banks.

Private sector credit growth came down to 12.42% in March which was 12.58% in February this year.

In December, 2018, the growth was at 13.3%, according to Bangladesh Bank

However, Bangladesh Bank has a target of 16.50% growth in the monetary policy for the second half (H2) of this fiscal year (FY).

The banking sector is facing huge liquidity crisis leading to shortage of greenbacks to meet import payments.

Association of Bankers, Bangladesh (ABB) Chairman Syed Mahbubur Rahman while speaking to Dhaka Tribune, said: “The high government borrowing is another reason for the slow credit growth in private sector.”

“Individual deposits are being diverted to the government schemes mainly due to higher interest rates on public savings instruments than deposit rates offered by the commercial banks,” he added.

He said all banks had put in a strong effort on fund hunting resulting in a surge in interest rates on deposits.

Now the private commercial banks are offering interest rates on term deposits ranging from 6% to 11%.

On the other hand, yields on national savings certificates are between 11% and 12%, according to the central bank data.

Currently, most of the banks are facing liquidity crisis due to high default loans. On the other hand, unsatisfactory recovery from borrowers was a big reason for the slow credit growth in the private sector, said a senior bank official.  

“A good number of large industrial groups have taken huge loans from banks, but their recovery is very bad. If the trend continues, the target of private credit growth will not be achieved this year,” he added.

At the end of 2018, the total non-performing loans amounted to Tk93,911crore  from Tk74,303 crore a year earlier, according to data from the central bank.

According to Bangladesh Bank, the total outstanding loan with the private sector rose to Tk9,796.86 billion in March 2019 from Tk8,714.31 billion last year.

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