Key Takeaways
- • Bangladesh private sector credit growth fell to 4.17% in September from 4.75% in August, the lowest reading since Bangladesh Bank began compiling the data in 2003, according to the central bank as cited by New Age.
- • The government's target of 6.8% private sector credit growth by December now appears increasingly unlikely given the persistent slowdown.
- • Nearly one-third of total outstanding loans are in default and about 60% of loans have become distressed assets, weakening bank balance sheets and capacity to lend.
- • Banks have increasingly shifted funds into government securities, and heavy government borrowing has produced a crowding-out effect that limits business credit access.
- • Existing measures, including a modest policy rate cut and a Tk 60,000 crore stimulus package, have had little impact, according to the editorial.
Summary
Private sector credit growth in Bangladesh continued to contract in recent months, a trend the New Age editorial describes as a warning that the economic slowdown is deepening rather than easing. According to the Bangladesh Bank, private sector credit growth declined from 4.75% in August to 4.17% in September, the lowest level since the central bank began compiling the series in 2003. The editorial notes that the seven-month slide indicates business investment has stayed subdued despite the restoration of political stability following the 2026 national elections. The government has targeted 6.8% private sector credit growth by December, a goal the editorial considers increasingly unattainable.
The editorial attributes the weakness to a combination of external and domestic factors. An ongoing energy crisis and high borrowing costs have discouraged business investment, while the fragility of the banking sector remains a major obstacle. Nearly one-third of outstanding loans are defaulted and roughly 60% have become distressed assets, leaving banks with weakened balance sheets and limited capacity to extend new credit. Persistently high inflation has prevented a meaningful reduction in interest rates, and government and central bank initiatives offering lower-cost loans have been implemented slowly.
Banks have also diverted increasing amounts into government securities to avoid risk, a move the editorial says departs from their role as financial intermediaries channeling savings into productive private investment. The government's heavy reliance on bank borrowing has compounded the problem, producing a classic crowding-out effect in which businesses face restricted credit access and high borrowing costs.
The editorial argues that measures taken so far, including a slight policy rate reduction and a Tk 60,000 crore stimulus package aimed at reviving the private sector, reopening closed factories and boosting investment, have had little effect. It calls on authorities to reassess the effectiveness of existing measures and introduce additional initiatives to restore business confidence and revive private sector credit growth.
The editorial attributes the weakness to a combination of external and domestic factors. An ongoing energy crisis and high borrowing costs have discouraged business investment, while the fragility of the banking sector remains a major obstacle. Nearly one-third of outstanding loans are defaulted and roughly 60% have become distressed assets, leaving banks with weakened balance sheets and limited capacity to extend new credit. Persistently high inflation has prevented a meaningful reduction in interest rates, and government and central bank initiatives offering lower-cost loans have been implemented slowly.
Banks have also diverted increasing amounts into government securities to avoid risk, a move the editorial says departs from their role as financial intermediaries channeling savings into productive private investment. The government's heavy reliance on bank borrowing has compounded the problem, producing a classic crowding-out effect in which businesses face restricted credit access and high borrowing costs.
The editorial argues that measures taken so far, including a slight policy rate reduction and a Tk 60,000 crore stimulus package aimed at reviving the private sector, reopening closed factories and boosting investment, have had little effect. It calls on authorities to reassess the effectiveness of existing measures and introduce additional initiatives to restore business confidence and revive private sector credit growth.
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