Bank credit growth in the private sector has fallen to a historic low

❐ Staff Reporter

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In March this year, the growth of bank credit in the country’s private sector fell to a historic low of 4.72 percent – which, according to those concerned, is a reflection of declining business confidence, slowing investment, and growing uncertainty in the economy.

Economists and bankers say that while political uncertainty has eased somewhat since the February elections, deep-seated problems discouraging investment and new business activity remain.

According to them, the energy crisis in March further complicated the situation, leading to a rapid slowdown in bank credit growth.

According to Bangladesh Bank sources, credit growth in the private sector has been declining consistently in recent months. In November 2025, the growth was 6.58 percent, falling to 6.20 percent in December. Then, in January and February of this year, it remained stable at 6.03 percent, but there was a major decline in March.

According to Bangladesh Bank data, the total outstanding loans in the private sector stood at Tk 18 lakh crore in March 2026.

“The underlying trend is that it is not increasing. Both necessary and sufficient factors are at work here,” said Mostafizur Rahman, a distinguished fellow at CPD.

He added, “The necessary element is political stability, which has improved somewhat since the elections. But the necessary elements—such as the cost of doing business, inflation, logistics policies, and many other things—have not changed much.”

He said the energy crisis in March put the situation under further pressure.

“These problems were already there, compounded by the energy crisis. Inflation, the cost of doing business and other factors have created uncertainty,” said Mostafizur Rahman.

Bangladesh Bank has been publishing data on credit growth in the private sector since 2003. Analysis of the data shows that the lowest growth was recorded in March this year in the last 24 years.

The deputy managing director of a private bank said that many businesses have closed after the fall of the Awami League government, and those that are still operating are not operating at full capacity.

He said, “When the factories were operating, they used to import capital equipment. But the production of the companies that are still operating has also decreased by 60-70 percent.”

Several managing directors of private banks said that the central bank’s policy stance on addressing the current economic challenges is still unclear.

They said, “Decisions to provide loans depend largely on overall policy clarity—including interest rates, exchange rates, and inflation trends.”

A bank managing director said the governor has talked about reducing lending interest rates, but there are questions about how realistic this is in times of high inflation.

He further criticized that despite pressure on the local currency, Bangladesh Bank has maintained the dollar exchange rate at 122 taka 75 paisa.

Another MD said the decision to cap interest rates on trade finance at 3 percent during the crisis has raised concerns.

He noted that the current cost of foreign borrowing stands at 2.5 percent plus the Secured Overnight Financing Rate (SOFR). And the additional cap on UPAS—a foreign currency-based import financing facility—will limit the scope of financing.

He said, “If financing through UPAS becomes difficult, banks will have to lend in local currency at 12-13 percent interest. The central bank thinks this will increase credit growth, which is why the interest rate on trade finance has been reduced. But this decision is not right—it is a wrong decision.”

Another bank MD said that the central bank’s priority for businesses and banks—controlling inflation, reducing interest rates, or GDP growth—is still unclear.

“There were expectations that many new projects would come after the election, but in reality that didn’t happen,” he said.

He added that the government’s bank borrowing due to the revenue deficit could increase interest rate pressure in the market and make things difficult for private borrowers.

“There is also uncertainty about where the exchange rate will stand in the next six months,” he added.

Another bank MD said many large corporates are seeking policy support from the central bank, which indicates their financial stress.

“When a company has to seek policy support, banks are less interested in financing them. As a result, it becomes difficult for those companies to make new investments or expand their businesses,” he said.

As demand for credit in the private sector has decreased, banks have increased their investment in treasury bills and bonds to increase income.

At the same time, the government is borrowing large sums from banks through treasury bills and bonds. An additional Tk 10,000 crore was also raised outside the regular borrowing schedule in the October-December quarter. Due to limited private investment, banks are investing in risk-free government securities at around 11 percent interest.

According to Bangladesh Bank data, the government collected Tk 33,000 crore through treasury bills in March this year. In April, it increased by 39 percent on a monthly basis to Tk 46,000 crore. Of this, Tk 32,800 crore was used to repay previously issued treasury bills. As a result, the government’s net borrowing through treasury bills in April stood at Tk 13,200 crore.