Financing of new private investment activities through bank credits continues to remain sluggish amid slowed-down pace of import of capital machinery in the recent months, according to the sources in relevant circles.
Top executives of banks and non-banking financial institutions (NBFIs) told the FE that the credit flow to the private sector slowed down for reasons of both endogenous and exogenous factors.
The fall-outs from the confrontational politics, particularly during the period from February last, have impacted adversely new private investments in an uncomfortable domestic situation while uncertainties about the global economy have given signals to the investors to follow a cautious wait-and-see approach to making new investments, they added.
The credit that has so far been disbursed by banks and NBFIs have mostly gone to the small and medium enterprises (SMEs), working capital supports and the real estate sector, they noted.
The private sector credit expansion has, thus, substantially fallen short of the targeted level, mainly due to the uncomfortable domestic and global situation, the sources in the central bank said.
According to Bangladesh Bank (BB), the private sector credit growth rate stood at 12.7 per cent until April of the outgoing fiscal against its target of 18.5 per cent.
The BB in its latest macroeconomic update, presented before its board of directors and also other high-ups, has termed the situation a "matter of concern."
The BB, however, expressed the hope that the rate of private sector credit growth would be around 15 per cent once the corporate entities that are now allowed to take credit from the overseas sources would be taken into consideration.
Ali Reza Iftekhar, chief executive officer of Eastern Bank Limited (EBL), a private bank in Bangladesh, told the FE: "The most of credits whose growth which we're witnessing now, have gone to the SMEs and the real estate sector."
In consumer loans sector, the volume of fresh credit growth has not been remarkable.
"There has been no big private investment in the recent period," the EBL chief executive officer (CEO) added.
Mr Iftekhar, also a credit specialist, said political stability and adequate infrastructural support facilities are major determinants of sanctions and disbursements of credits to the production-supportive activities now and also for growth of related capacities in the future, in order to help achieve the projected credit growth target.
"We, as bankers, and also the people in different strata feel the pinch of restive politics, actual or potential. It definitely makes it all the more difficult for the bankers to facilitate augmentation of credit flows to the private sector, in tune with the related growth," Mr Iftekhar noted.
Asad Khan, chief executive of Prime Finance, told the FE: "In June, our organisation did not open a single letter of credits (LC) for import of machinery."
Mr Khan said most of the funds from the leasing companies were being provided as working capital for industrial units on a term-basis. The tenure of such term lease-financing stretches from 36 months to 60 months for repayments in installments.
Mr Khan, also leader of the country's over 30 NBFIs, said: "We're not getting fresh bankable investment proposals and this situation is leading to piling-up of idle money."
The global situation, in the context of a lingering economic crisis in Europe, and the slowed-down demand for import of consumer items have also depressed the growth of credit to the private sector to a level much below the target, he noted.
Meanwhile, the monetary base, particularly for expansion of broad money (M2), remains at a comparatively higher level particularly because of a markedly higher amount of remittance fund-inflows, sent in foreign currency, by the overseas Bangladesh workforce in support of their families at home. This has also tended to raise the volume of liquidity in the financial sector, the sources observed.
Confirming this, the sources within the BB said that the M2 was higher than its earlier 'programmed' level because of higher growth of net foreign assets, in the form of remittances as well as external loans and grants.
However, the credit flow to the public sector has been maintaining its target, the BB sources said.
Centre for Policy Dialogue (CPD), a local think tank in its recent analysis noted that the BB "has been pursuing a tightened monetary policy" that led to slowering of the rate of credit growth in the private sector to a level lower than the projected level in the recent months.
The BB has been pursuing a tight monetary policy to tame the rate of inflation and to help contain the annual inflationary rate within the targeted level at 7.5 per cent. As a result, it caused a negative impact on the credit flow to the private sector, according to the CPD.
The CPD analysis said the rate of growth of credit to the private sector stood at 24.36 per cent in July in 2011. In June, 2012, it dropped to 19.72 per cent, and now it has declined further to nearly 13 per cent.
This slow growth, the analysis noted, might impact negatively the level of investment and the rate of the country's economic growth.
However, the BB follows policy directives to favour agricultural credits. "As a result, banks are mandated to disburse agricultural credits to different sectors like crops, livestock and fisheries," the CPD noted.
The growth rate of agricultural credit was at 9.0 per cent during the January-March period in 2013 over the level of the corresponding period in 2012.
Source: The Financial Express
