Dhaka, Bangladesh (BBN) – Private sector credit growth increased significantly in December last due to the falling trend in interest rates on lending, bankers said.
The private sector credit growth rose to 14.19 per cent in December, 2015 on a year-on-year basis from 13.72 per cent in November last, according to the central bank latest statistics. The credit growth was 13.22 per cent in October.
Currently, corporate entities prefer local currency loans along with foreign currency ones because of falling trend of interest rates on lending, they explained.
“Most of the banks are now offering single-digit interest rates on lending to encourage good performing borrowers particularly corporate clients for expediting their business activities,” a senior official of a private commercial bank (PCB) told BBN in Dhaka.
The existing upward trend of private sector credit growth may continue in the coming months if the declining trend of interest rates on lending persists, he added.
Talking to BBN, Mohammad Abdul Mannan, managing director and chief executive officer (CEO) of the Islami Bank Bangladesh Limited (IBBL) said higher investment in productive sector along with trade financing has contributed to raise the private sector credit growth during the period under review.
He expects that the rising trend of private sector credit may continue in the current calendar year.
The Bangladesh Bank (BB) earlier set the ceiling for private-sector credit growth at 14.80 per cent for the January-June period of the current fiscal year (FY), 2015-16.
The central bank of Bangladesh has already given a signal through slashing its policy interest rates to the bankers to increase investment by declining their overall interest rates on lending in near future.
Earlier on January 14 last, the BB slashed the policy rates aiming to spur investment, particularly in productive sectors for achieving maximum economic growth by the end of this fiscal year.
Thus interest rate on repurchase agreement (repo) came down to 6.75 per cent from 7.25 per cent on 14 January last while the reverse repo rate was re-fixed at 4.75 per cent from 5.25 per cent earlier.
The overall private sector credit growth is still at a satisfactory level if the foreign-currency loans, taken by the corporate entities from both overseas and local sources were considered, a BB official explained.
Currently, outstanding total foreign-currency loans stood at around US$8.0 billion, according to the central banker.
He also said the outstanding amount of foreign-currency credits includes loan extended by Offshore Banking Units (OBUs) of local and foreign commercial banks and direct borrowing by the corporate entities through the approval by the Board of Investment (BoI).
The total outstanding loans with the private sector rose to BDT 6205.07 billion in December 2015 from BDT 5434.07 billion in the same month of 2014. It was BDT 6039.23 billion in November last.