Bangladesh Private Sector Credit Growth Hits Historic 33-Year Low
Private sector credit growth in Bangladesh contracted to 4.47 percent in June, a 33-year low, as banks tightened lending and businesses deferred investment plans under sustained macroeconomic pressure.
The figure, reported by Bangladesh Bank, fell from 4.98 percent in May and represents the weakest expansion since 1993. The contraction underscores a deepening liquidity and confidence squeeze within the financial system, where the central bank's own revised target of 5.5 percent growth for the first half of FY26 was missed by a significant margin.
The Contraction in Numbers and Targets
The slide in credit growth is a direct indicator of a contracting real economy. Syed Mahbubur Rahman, managing director of Mutual Trust Bank, described the situation as an "economic war," with businesses holding back due to weak export demand and declining household incomes. The central bank's initial projection for January-June was 8.5 percent, a target subsequently revised downward, yet the final figure remained well below even that adjusted benchmark.
This performance is part of a multi-year trend. According to the central bank's quarterly report, private sector credit growth has slowed over the past two fiscal years, driven by cautious lending practices, a deterioration in asset quality, subdued investment, and global uncertainty.
Structural Hurdles: Non-Performing Loans and Capacity
A primary structural impediment is the colossal burden of non-performing loans (NPLs). Defaulted loans stood at Tk 588,704 crore at the end of March, constituting 32.26 percent of total outstanding loans. This has severely constrained banks' capacity and appetite for new lending, particularly to larger corporate borrowers.
Md Touhidul Alam Khan, CEO of NRBC Bank PLC, noted the absence of major investment projects in the pipeline. This reflects a broader crisis of business confidence, compounded by operational constraints such as persistent gas shortages that force factories to run below capacity. In this environment, lenders are pivoting strategy, with Khan confirming a focus on smaller-ticket SME loans as a safer alternative.
Forward Outlook and Policy Pressure
The central bank’s chief economist, Md Akhtar Hossain, offered a longer-term perspective, cautioning against viewing the low figure in isolation. He linked it to the aftermath of a previous period of rapid credit expansion—reaching as high as 20 percent—under the former government, where significant lending was siphoned off, damaging bank balance sheets.
The current situation presents a critical policy dilemma. The persistent inflation, which remained above 9 percent in June, limits the scope for monetary easing to stimulate borrowing. Simultaneously, the lack of credit flow stymies the private investment needed to boost supply and ease price pressures. The call from banking leaders for a coordinated government response highlights the urgency. Market focus will now shift to the upcoming monetary policy stance and any targeted fiscal interventions aimed at restoring credit flow to the productive sectors of the economy.