Published: Wednesday, June 19, 2013

Appetite for loans ebbs

Excess funds swell 52pc in banks in 10 months; lending rate slightly declines

 Appetite for loans ebbsExcess liquidity in the banks is still high as investors are still disinterested in taking bank loans even though the interest rate dropped.
Banks’ excess liquidity swelled by 52 percent between July and April this fiscal year to Tk 69,499 crore, according to data from Bangladesh Bank.
Businessmen often cite the high rate of interest as a reason for not taking loans but in recent times, the rate has gradually been decreasing by the month.
The average lending rate in April was 13.64 percent, which was 13.77 percent in July. The lending rate decreased by 0.13 percentage points on average in the last 10 months.
But the private sector credit growth has been decreasing every month and was 12.68 percent in April, which was 18.22 percent a year ago.
In January, Bangladesh Bank kept enough provision in its monetary policy so that private sector credit growth may expand further by June. But investors are not eager about borrowing funds. As a result, excess liquidity swelled.
Zahid Hussain, lead economist of The World Bank, said there is no demand for loans and credit growth has fallen because of uncertainty in the investment climate.
Zahid described the situation as a “mood of hesitancy”. Investors are pursuing a wait-and-see policy to know what happens in the political arena in the next seven to eight months, he said.
He said investors are taking a cautious policy as shutdowns have greatly hampered the economy too.
With the recent scam in the banking sector, bankers are also following a cautious policy in granting loans.
The economist said the central bank has tightened monitoring that may have decreased credit growth.
A mid-level official of United Commercial Bank Ltd said bankers are shaky about giving loans after the Hall-Mark scam and Anti-corruption Commission drive.
Bank management becomes suspicious when a branch sends a loan proposal, the official said.
An official of Agrani Bank said even though credit activity will remain sluggish for now, activity is expected to pick up when a new government will take office, as the confidence level among investors may increase.
However, a slight increase in investment is visible, according to the central bank’s letters of credit settlement statistics. Imports of capital machinery and raw materials fell in the first 10 months of the current fiscal year. LC opening in the same period increased slightly, which indicates that investment may pick up in future.