Businesses’ loan appetite wanes further amid political uncertainty

September 30, 2014

Pvt sector credit growth plunges to 11.25pc in July
The private sector credit growth in the country plunged in the first month of this financial year compared with that in the previous month as the businesspeople are yet to get confidence back to expand their business amid political uncertainty, said an economist and Bangladesh Bank officials. According to the latest BB data, the year-on-year credit growth rate in the private sector stood at 11.25 per cent in July against 12.27 per cent in June of this year.
BB officials said the credit growth in the private sector increased slightly in June, but the growth declined in July again due to lower confidence among the businesspeople.
Credit flow to the private sector stood at Tk 5,07,838.40 crore in July 2014 against Tk 4,56,476 crore in the same month of 2013. It was Tk 5,07,639.90 crore in June 2014 and Tk 4,52,157.20 crore in June 2013.
The private sector credit growth stood at 12.27 per cent in the last financial year, much lower than the BB-set target of 16.50 per cent as the businesspeople were reluctant to expand their business due to the political violence in the period, a BB official told New Age on Monday.
The private sector credit growth also hit a 14-and-a-half-year low at 10.60 per cent in December of 2013 compared with that of 16.61 per cent in the same month of 2012.
Against the backdrop, the central bank has taken a lower private sector credit growth of 14.50 per cent for the FY15 against 16.50 per cent for the FY14, the BB official said.
The lower credit growth in the private sector put an adverse impact on the GDP target for the FY14 as Bangladesh Bureau of Statistics projected that the country’s GDP growth was 6.12 per cent in the FY14, much lower than the initial target of 7.2 per cent, the BB official said.
The violent political conflicts in the first half of the FY14 over the process of holding general elections hit the private sector, he said.
In the situation, the businesspeople had adopted a ‘wait and see’ approach to expansion of their business in the period, he said.
Former caretaker government adviser Mirza Azizul Islam told New Age on Monday, ‘Political unrest has recently eased but a lot of uncertainty still persists, putting a negative impact on the demand for banks’ loans from the businesspeople.’
So, the businesspeople are not now taking long-term plan to set up fresh industrial units, he said.
The credit growth in the private sector will not increase if the political uncertainty persists in the coming months, Aziz said.
A good number of businessmen earlier became loan defaulters due to sluggish business amid the political unrest and in this situation it became difficult for them to get more loans from banks, another BB official said.
The BB data showed that the year-on-year credit growth in the overall domestic sector also decreased to 11.05 per cent in July 2014 against 11.57 per cent in June of this year.
The total credit in the domestic sector in July stood at Tk 6,45,828.90 crore against Tk 5,81,562.90 crore in the same month of 2013. It was Tk 6,37,906.20 crore in June 2014 and Tk 5,71,737 crore in June 2013.
The BB official said the government had significantly declined its borrowing from the banking sector in the recent months that also played a role in decreasing the overall credit growth in the domestic sector in July.
The government borrowing declined in the period due to a slower pace in implementation of the annual development programme amid political turbulence, he said.

-Input from New Age

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