Bangladesh Private Sector Credit Drops As Falling Commodities Prices in Global Market

January 5, 2009 5:07 a.m. EST

Dhaka, Bangladesh (AHN) - Bangladesh private sector credit declined by nearly 2.0 percentage points in October 2008 because of a base year effect and fall in commodity prices in the global market, officials said.

The private sector credit growth came down to 24.72 per cent in October from 26.55 per cent in September 2008, according to the central bank statistics.

"The credit flow to the private sector might have declined further in the months of November and December due to the base year effect as well as the falling prices of commodities in the international market," a senior official of the Bangladesh Bank (BB), the country's central bank, told AHN in the capital, Dhaka on Sunday.

On the other hand, commercial bank officials said the credit flow to the private sector declined during the period because of falling prices of commodities in the global market.

"The declining trend will continue if the prices of essential commodities maintain a downward trend," a senior official of a private commercial bank told AHN in the capital, Dhaka.

The country's economic activities came under serious pressure in the first half of the fiscal year 2007-08 due to two floods and the cyclone-Sidr, the BB official said while explaining the base-year effect on the credit flow to the private sector.

"But the overall credit flow again marked a significant rise in the second half of the fiscal year because of implementation of different rehabilitation programs across the country to recoup losses caused by the natural disasters," he added.

The credit flow to the private sector increased by 24.72 per cent to BDT 397.36 billion in October last on a year-on-year basis from 16.19 per cent or BDT 223.99 billion of the corresponding period of the previous year, the BB data showed.

The central bank officials, however, said the BB has already targeted 18-20 per cent growth in credit flow to the private sector for the fiscal 2008-09.

They said the central bank did not use any tool to squeeze the credit flow to the private sector. However, in the face of the global financial crisis, the BB has already advised the commercial banks to select good borrowers to avoid credit risk, they added.

The central bank of Bangladesh has already intensified its monitoring by using various methods to ascertain the quality of loans with a view to avoiding any financial risks in future.

On October 19 last, the BB governor in a meeting instructed the bankers to maintain caution in lending to non-productive sectors that may create an inflationary pressure on the economy.

Meanwhile, the central bank has started formulation of a new monetary policy considering the country's overall economic situation including the credit flow to the private sector, another BB official told AHN.

"The announcement of the monetary policy could be delayed because a new government is in the process of taking over," he said, adding that the policy is scheduled to be announced in the second week of this month.