Dhaka, Bangladesh (BBN) – Bangladesh’s private sector credit growth increased further in February due to higher short-term loans for making import payments along with settling foreign currency liabilities with the banks.
The growth in private sector credit flow rose to 15.88 per cent in February 2017 on a year-on-year basis from 15.61 per cent a month ago. It was 15.55 per cent in December 2016, according to the central bank’s latest statistics.
“The private sector credit growth increased in February following higher short-term lending, taken mainly by the corporate entities to clear their foreign currency loans with offshore banking units (OBUs) of the banks,” a senior official of the Bangladesh Bank (BB) told BBN in Dhaka.
Most of the corporate entities have settled their foreign currency loans with the local ones to avoid exchange loss in near future, the central banker explained.
“The corporate entities were encouraged to avail local currency loans following a depreciating trend of the local currency, Bangladesh Taka (BDT), against the US dollar (USD) recently,” he noted.
The exchange rate of the local currency depreciated by 31 paisa against the US dollar in the last one month in inter-bank foreign exchange (forex) market, bankers said.
The US dollar was quoted at BDT 79.6750 on March 30 against BDT 79.3650 on February 28, they added.
Lower interest rates on lending have also encouraged the corporate entities to receive short-term local currency loans, according to the bankers.
They also said most of the corporate entities now prefer such short-term loan instead of LTR (loan against trust receipt) mainly due to lower interest rate on the short term borrowings than LTR.
The banks now offer the short-term loans at 7.50- 8.50 per cent to their corporate clients while the interest rates on LTR ranging between 10 per cent and 12 per cent.
Talking to BBN another BB official said the rising trend in private sector credit growth may continue in the coming months, following a gradual momentum in implementation of projects under the annual development programme (ADP).
He also said agriculture loans along with SME financing are also maintaining a rising trend in the recent months that may help achieving higher private sector credit growth in the near future.
Echoing the central banker, a chief executive of a leading private commercial bank said the private sector credit growth may increase further in the coming months following implementation of different infrastructure projects along with some mega projects in the country.
Currently, the government is implementing nine projects under a Fast Track Project Monitoring Committee, headed by Prime Minister Sheikh Hasina.
“The ongoing remediation and expansion activities in the country’s apparel and clothing sector have helped to push up the private sector credit growth,” the senior banker explained.
The total outstanding loans with the private sector rose to BDT 7,277.01 billion in February from BDT 7,193.53 billion in January 2017. It was from BDT 7,170.19 billion in December 2016.
The central bank projected in its first half-yearly (H1) monetary policy statement for the ongoing fiscal year (FY), 2016-17, that private sector credit would grow at 16.50 per cent in June 2017.
In December 2016, private sector credit growth increased slightly after experiencing a falling trend in the previous three consecutive months.
The falling trend in private sector credit growth started in September 2016 that continued until November last.
In October 2016, private sector credit growth came down to 15.20 per cent from 15.34 per cent in the previous month, the BB data showed.