Private sector credit growth in the country has hit a five-year low, plunging to 7.15 per cent in January 2025 as businesses faced soaring interest rates, a crippling dollar shortage and uncertainty in forming an elected government.
This marks the sixth consecutive month of decline, sparking fears of stalled investments and a sluggish economy. The situation is dire, and without immediate intervention, the country risks sliding deeper into an economic crisis.
The data from Bangladesh Bank (BB) reveals a steady drop in credit growth since August 2024, when it stood at 9.86 per cent. By September, it fell to 9.2 per cent, followed by 8.3 per cent in October, 7.66 per cent in November, and 7.28 per cent in December.
Bankers are now more selective in lending, citing high default rates and liquidity stress. A senior official at a leading private bank admitted, "We can't afford reckless lending anymore.
With non-performing loans still high, many businesses don't meet our stricter requirements, so approvals are down."
This cautious approach has left businesses in a bind-they need loans to survive but find borrowing increasingly difficult.
Rising interest rates have only added to the strain. The central bank's tightening measures have pushed loan rates above 14 per cent, making it nearly impossible for businesses to expand or even sustain operations.
A garment factory owner in Narayanganj shared, "At 14 per cent interest, taking a loan is like signing up for a loss. And with the unstable exchange rate, input costs are all over the place."
The dollar shortage has worsened the situation, with the exchange rate climbing to Tk122 per USD, up from Tk 90 two years ago. This has driven up import costs, forcing companies to cut production, delay supplier payments, and even lay off workers. Import-dependent industries like textiles and manufacturing are bearing the brunt, as raw materials become too expensive to procure in bulk.
Political uncertainty is another major hurdle. The fall of Sheikh Hasina's administration on August 5, 2024, has left the private sector in limbo, waiting for clear policy directions from the new leadership.
A director at a major trade body said, "Right now, it's too risky to expand. We need clarity on trade policies, tax regulations, and forex management before making any investment decisions." Banks, too, are feeling the pressure.
The head of corporate lending at a commercial bank noted, "Even creditworthy companies are holding back.
They're waiting for better policy visibility, so many loan applications are just sitting on hold."The slowdown in private credit growth has sent shockwaves across key sectors.
Due to low credit different economy showed mixed signals in FY2023-24, with several key sectors struggling. The manufacturing sector grew by only 6.58 per cent, a slight rise from 6.0 per cent in FY2022-23 but still far from pre-pandemic levels. Construction saw moderate growth at 7.45 per cent, yet it remains below past highs. Agriculture slowed to 3.21 per cent from 3.37 per cent in FY2022-23.
On the other hand SMEs faced a major setback, with credit disbursement growth dropping to 8.06 per cent in FY2022-23 from 19.26 per cent in FY2021-22. The transportation sector's slowdown continued, affecting trade and logistics. These trends indicate that despite some recovery, major sectors are still struggling to regain momentum.
Credits in agriculture sector also facing a negative growth of 3.21 per cent in FY24 a slight decrease from 3.37 per cent in the FY23.
Economists are sounding the alarm, warning that without urgent intervention, credit growth could weaken further, stalling economic recovery.
They are urging the government and central bank to reassess interest rates, stabilize forex reserves, and introduce targeted incentives for struggling sectors. An economic analyst stressed, "If businesses don't borrow, they don't invest. If they don't invest, the economy won't grow. This can't continue much longer."
