The private sector credit growth plunged to 9.13 per cent in February amid a slowdown in imports due to the outbreak of coronavirus in China, the main import source of Bangladesh, and heavy government borrowing from the banking sector.
Due to the coronavirus pandemic, the industrial expansion and bank borrowing by businesses would witness further fall in the coming days.
Only in January, when coronavirus started spreading in China, Bangladesh’s import dropped by 12.87 per cent to $4.94 billion while the payments against imports decreased by 4.43 per cent to $32 billion in the first seven months (July-January) of the current fiscal year.
Although the government is yet to declare a lockdown in the country to check the virus spread, the country has almost come to a halt due to the government’s announcement of a 10-day holidays that include weekly holidays and closure of educational institutions and mass transport systems.
The government has also deployed armed forces across the country to enforce social isolation to contain the spread of coronavirus.
So far, the Bangladesh authorities have confirmed 39 coronavirus cases and the death of five infected individuals in the country while the global death toll has already exceeded 18,000 due to the pandemic.
The implementation of 9 per cent lending rate for all sectors would also discourage the bankers to issue credit to small and medium entrepreneurs as they would find such credit issuance costlier than that to the corporates.
At the end of February, the amount of total credit to the private sector increased to Tk 10,58,899.40 crore from Tk 9,70,348.70 crore a year ago.
Former adviser to an interim government AB Mirza Azizul Islam told New Age on Wednesday, ‘It [the fall in private sector credit growth] indicates that the industries were not feeling encouraged to expand their business due to some age-old problems in the areas of good governance and ease of doing business.’
Besides, export, a major production sector of the country’s economy, has witnessed contraction in last several months, thus slowing down demand for credit to the private sector, Mirza Aziz said.
Either demand for goods in the major export destinations has been shrinking or the competitors have been doing better than the country’s exporters, he said referring to the export fall.
The country’s export earnings in the July-February period of the current fiscal year fell by 4.79 per cent to $26.24 billion from $27.56 billion in the same period of last fiscal year.
On the other hand, the government’s heavy borrowing from the banking sector has squeezed the banks’ capacity to lend to the private sector, Mirza Aziz said.
As of March 15 of FY20, the government’s bank borrowing stood at Tk 50,601.24 crore, up 6.83 per cent or Tk 3,237 crore on Tk 47,364 crore borrowing target for the entire FY20.
Apart from these, the credit to the private sector more specifically to the SME sector would face further decline in the coming days when the 9 per cent ceiling on lending rate would come into force from April 1 this year, he said.
Banks would be reluctant to issue credit to the SME sector based on estimation that lending to the sector would be less profitable, he said.
Less-than-expected deposit rates in the banks would also be less attractive for clients that would lead the banks to a state of inadequate liquidity, he said.
On top of these, the turmoil in the global economy that surfaced with the accelerating spread of coronavirus would make the situation very much challenging in the coming days, Mirza Aziz cautioned.
Policy Research Institute executive director Ahsan H Mansur told New Age, ‘We have observed the downward trend even before the emergence of pandemic coronavirus.’
At that time the reasons for the fall were heavy government borrowing from the banking sector and the government’s move to implement 9 per cent ceiling on lending rate, said Mansur, also the chairman of BRAC Bank.
‘Given the impact of coronavirus on the country’s economy, we are heading towards a very devastating situation and it may result in a sharp fall in the private sector credit,’ he said adding that the impact of the virus outbreak would last at least three years.
During the period, the credit to trade and industries would come to a halt, he said.
However, consumer finance including the credit card-based lending might see an increase as people would have no scope other than availing such high-cost fund to fulfil their basic needs, he said.
The private sector credit growth in all the eight months of the fiscal year 2019-2020 remained far below the Bangladesh Bank’s projection of 14.8 per cent growth for FY20.
In January, the private sector credit growth was 9.2 per cent. In December last year, the growth rate dropped to 9.83 per cent from 9.87 per cent in the previous month.
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