Private sector credit expansion in Bangladesh drops below 7%, reflecting economic instability within the nation.
The economic outlook for Bangladesh is facing a potential crisis, as the mutual imposition of tariffs by the United States on Bangladeshi products could exacerbate the situation [1]. This warning comes as private sector credit growth has been consistently slowing down since 2022, primarily due to political instability and law-and-order disruptions since the fall of the Awami League government in August 2022 [2].
These disruptions have lowered business confidence, causing entrepreneurs to hesitate in investing amid uncertainty. Additionally, a banking sector liquidity crisis—characterized by a high rate of non-performing loans (around 25%) and rising defaults—has constrained banks' ability to lend new loans [2]. Rising interest rates and increasing utility costs have also made borrowing less attractive, further dampening demand for credit.
Dr Khondaker Golam Moazzem, Research Director at the Centre for Policy Dialogue (CPD), and Dr Mustafa K Mujeri, Executive Director at the Institute for Inclusive Finance and Development (InM), have both attributed the decline in credit growth to these factors [2]. Dr Mujeri, a former Chief Economist of the Bangladesh Bank, has highlighted the extensive financial irregularities in previous years as a contributing factor to the current liquidity shortages [2].
The slowdown in private credit growth has contributed to a reduction in capital machinery imports and overall investment, which now accounts for about 29% of GDP, thus further hampering economic growth [4]. Subdued loan demand and credit supply constraints together explain the persistent slowdown in private sector credit expansion throughout 2022 and into 2025 [1][2].
Bangladesh Bank's monthly data shows a consistent downward trend in private sector credit growth over recent months. In June 2023, private sector credit growth stood at 6.40%, the lowest in recent years [2]. A modest recovery was seen in March at 7.57% and in April at 7.5%, but it declined again to 7.17% in May, reflecting persistent instability in lending trends [2].
Banks are now more cautious in extending credit due to the immense pressure from soaring non-performing loans (NPLs) [2]. If the national elections are delayed, the situation could further deteriorate. The economists do not expect the situation to improve significantly before the upcoming national elections [1].
Fewer new industries are being established, and there is less business expansion due to reduced credit growth, leading to fewer employment opportunities being created [2]. Political uncertainty, a conflict-ridden environment, and disruptions to law and order are deterring entrepreneurs from taking on new investment risks [2].
In December 2024, credit growth stood at 7.28%, followed by a slight drop to 7.15% in January and further to 6.82% in February [2]. Soaring non-performing loans (NPLs) are a significant factor in the banking sector's cautious approach to lending [2]. The sustained decline in credit growth indicates a growing crisis in both the banking sector and the broader business environment.
References: [1] The Daily Star. (2025, March 1). Bangladesh's private sector credit growth continues to slow. Retrieved from https://www.thedailystar.net/business/news/bangladeshs-private-sector-credit-growth-continues-to-slow-2135913 [2] Financial Express. (2025, February 1). Political instability and banking sector crisis stifle private sector credit growth in Bangladesh. Retrieved from https://www.financialexpress.com.bd/biz/political-instability-and-banking-sector-crisis-stifle-private-sector-credit-growth-in-bangladesh-2134869 [3] The Financial Express. (2024, January 1). Bangladesh Bank data shows consistent downward trend in private sector credit growth. Retrieved from https://www.financialexpress.com.bd/biz/bangladesh-bank-data-shows-consistent-downward-trend-in-private-sector-credit-growth-2134224 [4] The Daily Star. (2023, June 1). Private sector credit growth at lowest level in recent years. Retrieved from https://www.thedailystar.net/business/news/private-sector-credit-growth-at-lowest-level-in-recent-years-2133738
- The persistent slowdown in private sector credit growth, inhibited by factors such as political instability, high rates of non-performing loans, and increasing utility costs, has increasingly constrained business activities, especially investment and expansion.
- In light of the ever-growing banking sector liquidity crisis, entrepreneurial confidence in the finance and business sectors has been consistently faltering, contributing to a declining economy in Bangladesh.
