Private sector credit growth slows to 6.82pc in February, lowest since data tracking began in 2015

Demand for business loans continues to shrink amid high interest rates, political uncertainty and low investment

Private sector credit growth has declined significantly to 6.82 percent in February, driven by reduced demand for loans from businesses — the lowest growth recorded in the past decade.

According to updated figures published by Bangladesh Bank on Sunday, credit growth in the private sector had stood at 7.15 percent in January.

Since the political movement began in July last year, private sector credit growth has been on a steady downward trajectory.

From 10.13 percent in July, it dropped to 9.86 percent in August — the month the Awami League government was ousted.

In September, the figure fell further to 9.20 percent, marking a three-year low.

It continued to decline, reaching 8.30 percent in October, 7.66 percent in November, and finally dropping to 7.28 percent in December.

Now, the February figure of 6.82 percent is the lowest since January 2015 — when Bangladesh Bank began tracking this data.

The only comparable period was in May 2021, during the COVID-19 pandemic, when growth fell to 7.55 percent.

Pubali Bank Managing Director Mohammad Ali said the drop in private sector credit growth was largely due to a significant decline in the import of capital machinery, which typically requires substantial bank financing.

“Businesses are importing less capital machinery because they are investing less,” he told bdnews24.com.

“When investment slows, so does private sector credit.”

He also noted that the political uncertainty following the changes in August has made investors cautious.

“Before committing to new investments, businesses consider many factors,” he said.

Data from Bangladesh Bank shows that letters of credit (LCs) for importing capital machinery dropped by 30.10 percent in the first eight months of fiscal year 2024-25, from July to February, compared with the same period last year.

LCs worth $1.15 billion were opened during this period, compared with $1.65 billion in the 2023-24 fiscal year.

According to Mohammad Ali, high interest rates are also discouraging businesses from borrowing.

“The repo rate is currently 10 percent, so banks cannot afford to lower their interest rates,” he explained.

The repo rate, or policy rate, is the interest rate at which commercial banks borrow from the central bank during liquidity shortages.

It plays a key role in regulating money supply and investment in the economy.

The rate directly influences the interest charged on bank loans.

Since 2022, Bangladesh Bank has been raising the repo rate.

The current monetary policy, effective from January to July 2025, has kept the rate at 10 percent.

At the policy announcement, Governor Ahsan H Mansur said the repo rate would remain unchanged until inflation shows a clear downward trend.

Once inflation falls, the central bank may consider a rate cut.

A treasury head at a private bank said lending rates have reached 15–16 percent in recent months, compared with 11–12 percent a year ago.

Syed Moazzem Hossain, president of the Australia-Bangladesh Chamber of Commerce and Industry (ABCCI), echoed the concern, saying businesses are finding it increasingly difficult to take out loans.

“Just a year ago, loans were available at 12 percent. Now, no one is getting loans below 15–16 percent,” he said.

“Businesspeople factor in the cost of doing business. No one wants to operate at a loss. That’s why credit growth in the private sector has declined.”