Published in The Financial Express on Sunday, 9 February 2014.
July-Dec private sector credit slows on tensions
The credit flow to the private sector slowed moderately during the July-December period, which analysts blamed on the political turmoil during the period that brought almost all economic activities to a halt.
They said it would take time to restore confidence of big investors and woo them to invest in medium and large projects. It is believed that the large and medium industries account for around 60 per cent of the total private sector credit.
According to the central bank’s latest statistics, the credit flow to the private sector grew by 5.88 per cent during the July-December period in 2013, down by 0.25 percentage point from that of the corresponding period in 2012.
Dr. AK Enamul Haque, senior economist at the Dhaka-based Economic Research Group (ERG), told the FE that the meagre percentage change was unbefitting for the period, if the reality of the time was taken into account.
He said the economy had bled substantially during the period, especially during the last two months of the last calendar year.
Mr. Haque said: “In my view, the political turbulence in the last six months barred all potential investors from investing in any big projects.”
“We assumed the statistics would be negative, but it remained in the positive territory,” he wondered.
Mr. Haque, however, said many banks extended their loan facilities including working capital to help firms sustain business amid the political tensions.
According to the Bangladesh Bank (BB), the working capital financing grew in September last. There was 15 per cent growth in the working capital financing in September last against 13.8 per cent in the corresponding period a year earlier.
Dr. Khandker Moazzem, additional director at the Centre for Policy Dialogue (CPD), said the demand for loans had definitely dropped during the fist half of the current fiscal year (FY) 2012-13.
“But it should have been much lower, given the chaotic situation that prevailed during the July-December period,” he said.
Mr. Moazzem, however, said the slow growth was probably been caused by short-term loans provided by commercial banks.
He also pointed out that the disbursement of loans to small and medium enterprises (SME) grew during the period following the central bank’s insistence.
He said the growth in credit flow to the private sector would not surge significantly until restoration of full confidence of investors by ensuring political stability.
He said many big investors stopped taking up new ventures much earlier after assuming volatility in the election year.
An official at the BB told the FE that the central bank had advised commercial banks to expedite the credit flow to the private sector for achieving its monetary policy goal.
He said during August last the central bank had advised bankers to boost the credit flow to the private sector.
However, he said many big corporate houses were now taking overseas loans available at low interest rates. “This is also a significant factor as it is reflected in the overall growth of the private sector credit,” he added.
BB sources said term loans borrowed by big corporate houses with most of those having the maturity period of over five years stood at US$ 534 million during the July-December last.
Local entrepreneurs take around US$ 1.0 billion overseas loans a year.
However, BB sources said there had been a decline in loans for the transport and communication sector in September last. It said the volume of loans to the transport and communication sector shrank by 1.30 per cent in September last over the corresponding period in 2012.
It also said the volume of construction loans remained virtually unchanged in September last.