Private sector credit growth in Bangladesh has plummeted to 7.15% in January, marking its lowest level in recent history amid a prolonged economic slowdown.
The sluggish growth, compounded by a decline in capital machinery and essential raw material imports, has raised concerns about a looming investment stagnation that could have severe long-term repercussions for the economy.
According to Bangladesh Bank data, January's private sector credit growth was the lowest since records began in the 2005-06 fiscal year.
Previously, the only instance of credit growth falling below 8% was in May 2021, when it stood at 7.55%.
By contrast, private sector credit growth had peaked at 25.18% in the 2007-08 fiscal year.
An analysis of credit data reveals that the downward trajectory accelerated following the July-August mass movement.
In July, private sector credit growth stood at 10.13%, but it dipped to 9.86% in August, the month of the government's collapse.
By September, it had fallen to 9.20%, marking a three-year low, before declining further in the subsequent months—8.30% in October, 7.66% in November, 7.28% in December, and finally, 7.15% in January.
As of January, total outstanding private sector credit stood at BDT 16.80 lakh crore, up from BDT 15.67 lakh crore a year earlier.
However, the amount of loans disbursed to the private sector during this period declined significantly, totalling BDT 1.12 lakh crore—down from BDT 1.46 lakh crore in the previous year.
This represents a year-on-year reduction of BDT 33,954 crore, with a decline of BDT 34,806 crore over the past six months.
Analysts attribute the slump in credit expansion to policy uncertainties, high interest rates, inflationary pressures, law and order concerns, and energy shortages.
They warn that without corrective measures, the downturn could further weaken economic growth and exacerbate unemployment.
Bank officials note that such a prolonged decline in credit growth is unprecedented.
The trend has continued beyond November, with little sign of reversal.
Moreover, a significant portion of the recorded credit growth stems from unpaid interest and increased borrowing costs rather than fresh investments.
Mutual Trust Bank Managing Director Syed Mahbubur Rahman said prevailing uncertainty, particularly concerning law and order, has discouraged investors.
"Following the regime change, many factories were temporarily shut, and job losses occurred, leading to a loss of confidence among international investors. Business owners are reluctant to borrow due to concerns over security and stability," he remarked.
While the private sector struggles with reduced access to credit, government borrowing from banks has surged, doubling in the first seven months (July–January) of the current fiscal year.
Efforts to curb inflation have led the new central bank governor to raise policy rates three times, causing lending rates to rise sharply.
In January, the average interest rate on loans reached 11.89%, compared to 7.24% a year earlier. Despite this, inflation has shown little sign of easing, and living costs continue to rise.
Economists argue that the private sector is the backbone of economic growth and employment.
With the sector struggling to access credit, industries, service providers, and retailers face mounting difficulties.
"Inflation control policies are depriving businesses of necessary credit, yet inflation remains stubbornly high, worsening people's financial burden," analysts caution.
If this trend persists, they warn, the business environment will deteriorate further, leading to increased non-performing loans and financial distress.
Former president of the Dhaka Chamber of Commerce and Industry (DCCI), Shams Mahmud, said entrepreneurs are prioritising survival over expansion.
"Right now, our focus is on sustaining existing businesses rather than launching new projects. I am unaware of any entrepreneur considering expansion under the current conditions. The government has offered no clear guidance or engagement with the business community on investment or job creation," he said.
Mahmud further highlighted the challenges of obtaining bank loans, describing them as "increasingly elusive."
He also criticised the imposition of higher VAT and taxes without industry consultations, which he said has intensified financial strain on businesses.
Former caretaker government adviser Dr AB Mirza Azizul Islam pointed out that investment levels have remained stagnant at around 22-23% of GDP for years.
"The lack of improvement in law and order, infrastructure, and investor confidence has prevented significant growth in private sector investment. While the government appears aware of these issues, it has yet to take visible steps to address them. If this situation persists, investment stagnation will deepen, leading to lower production and employment levels, ultimately jeopardising the government's economic growth targets," he warned.
Chief Adviser’s Special Assistant on Finance Anisuzzaman Chowdhury described the economy as being in a "fragile state."
He noted that political uncertainty is deterring investors.
"Labelling a government as ‘interim’ creates hesitation among investors, who question the longevity of existing policies. Politics and economics are deeply intertwined, and until stability is restored, investment will remain subdued," he observed.
Despite widespread concerns, Bangladesh Bank appears unfazed by the decline in private sector credit growth.
A senior central bank official, speaking on condition of anonymity, attributed the slowdown to past mismanagement.
"During the Awami League's tenure, substantial sums were withdrawn from banks under the guise of investment. That practice has now been completely curtailed. Only genuine businesses are receiving loans, which is why credit growth appears low. Furthermore, given the economic uncertainty, most business owners are focusing on keeping existing factories operational rather than launching new ventures. If credit growth declines further, it will not necessarily be a problem, as genuine investors will still have access to loans as needed," he asserted.
With the private sector struggling, rising inflation, and borrowing costs at record highs, concerns are mounting over whether the government and the central bank can steer the economy towards stability before the investment climate deteriorates further.
