Private sector credit growth in Bangladesh has continued to dip in recent months, with banks and borrowers adopting a go-slow strategy amidst the stress on the economy and growing apprehensions of a political crisis centring the upcoming parliamentary elections.

In August, the growth was 9.75 percent year-on-year whereas it was 9.82 percent in the preceding month, showed Bangladesh Bank data.

The August figure was the lowest since October 2021 when it stood at 9.44 percent.

It was also 1.15 percentage points lower than the BB's target of 10.90 percent set for the first half of fiscal year 2023-24.

However, the BB projects that private sector credit growth will stand at 11 percent year-on-year at the end of fiscal year 2023-24, meaning next June.

Bankers also attributed it to a rising lending rate following a recent interest rate cap withdrawal, tight liquidity in a majority of banks and a lacklustre performance in loan recovery.

Banks and borrowers have taken a go-slow strategy while the lending rate started to rise after the withdrawal of the cap at 9 percent, Mirza Elias Uddin Ahmed, managing director of Jamuna Bank, told The Daily Star yesterday.

During the unveiling of a new monetary policy in June this year, Bangladesh Bank withdrew the cap and introduced a new system for fixing the lending rate.

As per the central bank's new formula, banks can impose a 3 percent margin on the six-month moving average rate of treasury bills, abbreviated as SMART.

The SMART was 7.20 per cent in September and will be applicable for October, up from 7.14 percent in August.

Moreover, import financing has come down due to austerity measures amid falling foreign exchange reserves, said Ahmed.

He, however, hopes for the credit demand to increase next year.

Consumer demand has been adversely affected by skyrocketing inflation, which has led to a slower credit demand, Sohail RK Hussain, managing director of Meghna Bank, told The Daily Star recently.

Inflation stood at 9.63 percent in September, much higher than the government target.

Import of luxury products, including automobiles, have sharply dipped due to the austerity measures of the government and central bank meant to save foreign currencies, the reserves of which declined about 25 percent over the past one year, said Hussain.

The country's gross forex reserves were at $21.11 billion as of September 27, as per the BB data.

The senior banker also blamed slow credit recovery for the decline in the availability of loanable funds.

Banks' lending capacity has continued to decline due to record high non-performing loans (NPLs), said a private commercial bank's chief executive officer (CEO) on seeking anonymity.

At the end of June this year, the NPLs stood at Tk 156,039 crore or 10.11 percent of the total disbursed loans, as per the latest data available with Bangladesh Bank.

A good number of banks, including some Islamic ones, are now facing a liquidity shortage and are running their banking activities taking liquidity support from the call money market and the central bank, said the CEO.

Six banks and one non-bank financial institution took Tk 3,507 crore under a seven-day repurchase agreement (repo) facility from the central bank last Monday.

Business is on the wane, so businesspeople are not interested in securing fresh bank loans, said Md Shahidullah Azim, vice-president of the Bangladesh Garment Manufacturers and Exporters Association.

"Export orders have fallen due to the volatility in the global economy," he said.