Pandemic kills appetite for credit among businesses

Businesses hardly had any demand for credit in 2020.

While the year started with the demand tapering for a host of reasons, the pandemic simply killed the demand.

At the end of November, private sector credit growth stood at 8.2 per cent, the lowest in recent years and 6.6 percentage points lower than the 14.8 per cent target set for fiscal 2020-21.

Between February and June, private sector credit growth consistently dropped when the global pandemic was in its ominous form. 

From 9.2 per cent in January it came down to 8.6 per cent in June as the lenders refrained from disbursing credit during the countrywide shutdown from March 26 to May 30. 

“Loan disbursement by banks was halted amid the shutdown period, which was the reason for the slow credit growth,” said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

However, the private sector credit growth has picked up from July to September due to stimulus packages implementation, he added.

September’s growth was 9.5 per cent. 

The country’s banks were disbursing loans from several stimulus packages during the period, which caused the uptick, said Rahman.

But from October, growth decelerated as a number of the stimulus packages have already been implemented.

The fear of the second wave of coronavirus cases has left businesses putting a pause on their investment plans.

“This was another reason for slow credit growth,” said Rahman, also a former chairman of the Association of Bankers, Bangladesh, a platform of banks’ MDs.

The entrepreneurs and industries did not go to business expansion for want of confidence, said Asif Ibrahim, a former president of Dhaka Chamber of Commerce and Industry, the largest SME trade body of Bangladesh.

The deadly virus is very much alive and kicking.

“It is very tough to make fresh investment and business expansion decisions when the world is witnessing a fresh wave of coronavirus cases.”

The demand for credit from the private sector will increase once the pandemic has been doused once and for all, Ibrahim said.

“The growth figure is not a true picture of the real situation,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

The real situation could very well be worse.

The adjustment of interest and rescheduling of the existing loans might be the reasons behind the uptick in private sector credit growth past the 8 per cent-mark, he said.

The real growth would not be more than 6 per cent, said Mansur, also a former economist of the International Monetary Fund.

“The lower imports are the reflection of slow investment scenario prevailing in Bangladesh.”

In the first four months of fiscal 2020-21, imports dropped about 13 per cent year-on-year to $15.8 billion, according to data from the Bangladesh Bank.

The negative import growth in the current situation indicates the stagnated economic activities, said Zahid Hussain, a former lead economist of the World Bank’s Dhaka office.

Investment-related imports like capital machinery and industrial raw materials have dropped significantly owing to the pandemic. 

“There will not be any sustainable economic recovery from the recession for the next six months,” Hussain added.

Banks though are sitting on an enormous pile of surplus liquidity.

At the end of September, excess liquidity in the banking sector stood at Tk 169,658 crore, according to data from the BB.

“The private sector credit growth would not increase much until March next year as our economy and businesses have not fully recovered,” Rahman said.

The growth would hover around the 9 per cent-mark in the upcoming days, he added.