Kazi Zahidul Hasan :
Private sector credit growth has surpassed target by 3.4 per cent in July-December last year thanks to aggressive lending by the commercial banks.
The credit growth rose to 19.6 per cent above the target of 16.2 per cent set by the central bank in its previous monetary policy (January- June). Private sector credit growth hit this high last time in March 2012, reaching 19.5 per cent.
Experts, however, have issued cautionary notes about the high lending growth given the present investment climate that remained sluggish over the last years as a result of power and energy crises and inadequate infrastructure.
“The credit expansion is always driven by the factors relating to both the demand and supply side of the credit market. Lending growth remained flat over the last couple of years in contrast to sluggish investment demands from private sector. So, a 19.6 per cent credit growth under the prevailing macroeconomic situation seems to be unusual,” former Bangladesh Bank (BB) Governor Dr. Salehuddin Ahmed told The New Nation.
He said the rate of growth has raised concerns about how sustainable such growth is in the medium term and whether it poses significant risks to the stability of the financial sector.
“It may lead to negative microeconomic development as well as banking crises,” he adding the central bank should rein in the credit growth to avert the crisis.”
“Nothing changed rapidly to support such a high credit growth. The growth signals a downside risk on the economy. Excessive credit growth is often considered to be an indicator of future problems in the financial sector,” Dr Zahid Hussain, an Economist, told The New Nation yesterday.
He said lending to the private sector recorded a boom surpassing the central bank’s monetary target. The excess credit growth poses a systemic risk to money and financial market plunging banks to liquidity crisis in near-term. It would also push up lending rates and fuel inflation.
Dr Zahid Hussain suggested the central bank to bring the high credit growth under its proper scrutiny to maintain macroeconomic stability. “Bangladesh Bank should look into the matter to ascertain whether borrowers invested the banks’ money in the real economic sectors or diverted for other purposes,” he added.
“We’re going to rein in the unusual credit growth considering its adverse impact on economy and banking sector. BB would set policies in this regard in its next monetary policy,” SK Sur Chowdhury, BB Deputy Governor told The New Nation.
