B Mirror Desk: According to current data, private sector loan growth in Bangladesh fell to 6.82 percent in February, the lowest level in 21 years. This number is the lowest since February 2004, when it was 14.4 percent, according to the Bangladesh Bank.
With loan growth declining for the seventh consecutive month, analysts have said that this sharp decline underscores a deepening crisis in the nation’s banking and commercial sectors. They added that the situation might worsen as a result of the US imposing retaliatory duties on Bangladeshi imports.
According to Bangladesh Bank data, private sector credit growth was 7.15 percent in January 2025, compared to 7.28 percent in December, 7.66 percent in November, 8.3 percent in October, 9.2 percent in September, 9.86 percent in August, 10.13 percent in July, and 9.84 percent in June 2024. The fall started in November 2022, but with the August 5, 2024, change of government, political unrest made matters worse.
The January announcement of Bangladesh Bank’s new monetary strategy established a goal of 9.8% growth in private sector lending through July 2025. But actual growth has continuously lagged behind this goal, casting doubt on the economy’s overall direction.
Economists caution that the current slow pace of credit growth may hinder industrial development, discourage new investments, and restrict job opportunities. They attribute this decline to various factors, such as a stagnant business environment, heightened regulatory oversight from the central bank, political instability, ineffective law enforcement, and the departure or downsizing of businesses previously associated with the ousted Awami League government.
Zahid Hussain, the former lead economist at the World Bank’s Dhaka office, stated to New Age that the decrease in private sector credit is a result of multiple influences, with political uncertainty being a significant factor. He indicated that credit demand is unlikely to recover until the political landscape stabilizes, as businesses are remaining cautious ahead of the upcoming national elections.
Zahid emphasized that most bank loans are directed towards production and investment, and the decline in credit growth reflects weak demand within the business sector. He also highlighted that several banks, especially those whose boards have been recently restructured by the Bangladesh Bank, face restrictions on issuing large loans, further limiting credit availability.
Although governance has seen some improvement and the practice of granting loans anonymously has significantly decreased following the recent political transition, the ongoing political uncertainty has also played a role in the slowdown of overall credit growth, according to Zahid. He added that the US tariffs set to take effect today would likely exacerbate the situation. Bankers have noted that the business environment remains lackluster, even after the establishment of an interim government following the removal of the authoritarian Sheikh Hasina regime.
They identified significant challenges such as high inflation, rising lending rates, and poor loan recovery. The Bangladesh Bank’s monetary policy statement issued on February 10 recognized that the slowdown in credit was not merely due to increases in policy rates; it was also influenced by sluggish deposit growth and increased government borrowing from commercial banks, which further limited private sector access to funds. The central bank’s restrictive measures, including raising the policy rate to 10 percent, have driven commercial lending rates to nearly 15 percent. These elevated borrowing costs have rendered loans unaffordable for numerous businesses.
Trust among depositors has diminished following a series of loan scandals and irregularities during the previous administration. Syed Mahbubur Rahman, managing director of Mutual Trust Bank, informed New Age that the demand for credit in the financial market remains weak due to the current economic and political climate in the country. He expressed that the business environment is unlikely to see significant improvement until after the national elections. Mahbubur also noted that the law and order situation, along with global economic factors, could further affect Bangladesh’s economic indicators. He remarked that the recent US tariffs on Bangladeshi products could negatively impact businesses, subsequently leading to a decrease in credit demand within the banking sector.
Numerous businesses associated with the Sheikh Hasina administration have either reduced their operations or ceased them entirely, citing legal pressures and a challenging business environment. This situation has further diminished credit demand and economic activity within the country.
The banking sector’s capacity to provide loans has been significantly hindered by an increase in defaulted loans, substantial withdrawals of deposits, and liquidity constraints. By the end of 2024, the volume of non-performing loans in the banking sector escalated to Tk 3.45 lakh crore, a sharp rise from Tk 1.45 lakh crore in December 2023.
To meet their daily cash needs, several banks have looked to the central bank and bigger financial institutions for assistance. The situation has been made worse by economic issues such as excessive inflation, volatile foreign exchange prices, and a continuous lack of dollars. Import costs have increased dramatically over the last two years due to the exchange rate’s sharp increase from Tk 90 to Tk 122 per US dollar.
