The banking industry showed a weaker appetite for lending to businesses in July as they preferred parking their liquid funds in safer, lucrative government bonds.
The latest Bangladesh Bank data reveals that the total outstanding credit in the banking industry stood at Tk 23.20 lakh crore in July, edging up by just 0.13% from June.
Compared to the previous July, it was 11.2% higher, but the growth came largely from investments in government securities rather than new lending to businesses.
Total outstanding loans and advances to businesses and consumers at the end of July dipped by 0.14% month-on-month to Tk 17.33 lakh crore. While the total was 7.1% higher year-on-year, the monthly decline shows a slowdown in new loan disbursements in July and reflects banks’ caution amid economic uncertainty.
The decline in new loans was stark in trade-related financing. Outstanding bills covering trade financing dropped 4.5% month-on-month and 30% year-on-year to Tk 27,240 crore at the end of July, indicating subdued trade and tighter financing conditions.
Meanwhile, the banking industry’s total investments, mainly in government securities, rose 1.2% from June and 30% from the previous July to Tk 5.59 lakh crore.
Bankers said most of this investment was directed towards government bill-bonds, which had offered around 11% interest in July but have now dropped to single digits.
Long-term bonds have already generated decent capital gains for banks as the secondary market investors are buying the high-interest instruments at higher prices now.
Mutual Trust Bank Managing Director and CEO Syed Mahbubur Rahman said that banks were increasingly turning to government bonds and treasury bills, drawn by safer returns in the face of slowing private-sector credit demand.
“This signals a recalibration within the banking sector, where banks are hesitant to expand riskier loan portfolios and are instead opting to park funds in government securities,” he told TIMES of Bangladesh.
Economic analyst Md Mazedul Haque warned that the ongoing trend could dampen private investment and hinder overall economic growth.
“The surge in bank investment in government securities raises the specter of crowding out, where private borrowers face tighter access to financing as banks channel resources to the state,” he said.
The shift in the banking sector highlights the need for a more balanced approach to credit and investment, ensuring that both public and private sector financing needs are met to foster long-term economic growth, Haque added.
