The private sector credit growth in the country increased in March compared with that in the previous month due mainly to increased business activities during Ramadan.

Bangladesh Bank’s data showed that the growth rose to 10.49 per cent in March from 9.96 per cent in February, 9.95 per cent in January of 2024 and 10.2 per cent in December 2023.

This increase marked the highest growth rate since May 2023, when it reached 11.10 per cent.

The growth increased in the reporting period due to high imports surrounding Ramadan and Eid-ul-Fitr, one of the largest festival for the Muslims.

Business activities typically increase significantly during Ramadan, which could raise the interest of businesses in borrowing from banks to meet their increased demands and capitalise on the festive season.

In November and October 2023, the growth rates were 9.9 per cent and 10.09 per cent, respectively.

The growth had been hovering around 10 per cent since June 2023 due to various factors, including a liquidity shortage, reduced loan disbursement capacity by banks, and ongoing economic challenges.

Responding to this, the central bank lowered the private sector credit growth target to 10 per cent for January-June of the financial year 2023-24, down from the previous target of 11 per cent.

This adjustment reflects concerns over reduced interest from private sector investors, driven by higher borrowing costs, ongoing global and domestic economic uncertainties, liquidity constraints within the banking sector, and the implementation of a contractionary monetary policy.

Furthermore, the central bank continued its foreign currency sales, which acted as automatic quantitative tightening measures, significantly absorbing liquidity from the system.

Bankers have pointed out several challenges within the financial sector, including sluggish deposit growth, a rise in non-performing loans and increased cash withdrawals by clients.

Many banks are now facing cash crises and have sought assistance from the central bank and larger banks to meet their daily cash needs, they said.

Economic challenges such as high inflation, foreign exchange volatility, a dollar shortage, and an energy crisis have further dampened business activities, making businesses hesitant to seek bank loans.

The government and Bangladesh Bank have also tightened monitoring and imposed restrictions on imports, which have curtailed business operations and reduced the demand for credit.

Additionally, deposit growth has been poor, while banks’ NPLs have soared during the reporting period, making it challenging for banks to disburse loans.

Over the past 34 months, the central bank has sold approximately $32 billion from its reserves, with $11.67 billion allocated to banks in July-February of the current financial year 2023-24, $13.5 billion in FY23, and $7.62 billion in FY22.

This significant depletion of reserves has contributed to the depreciation of the local currency, with the exchange rate reaching Tk 110 from Tk 90 against the US dollar within a year.