Bangladesh has rebuilt its foreign exchange reserves and eased pressure on its external sector. But another concern is emerging inside the economy – a sharp slowdown in private-sector credit growth.
Private-sector credit growth fell to 4.47 per cent in June 2026, the lowest level in nearly three decades. It declined from 4.98 per cent in May, 4.75 per cent in April and 4.72 per cent in March, remaining below the 5 per cent mark for several consecutive months. The figure was also well below the central bank’s revised target of 5.5 per cent for June.
The decline is more than a banking-sector statistic. It reflects a broader weakness in the flow of finance to businesses, which rely on bank loans for expansion, working capital and new investment.
Private-sector credit supports factory expansion, machinery imports, trade and employment. When lending slows sharply, businesses postpone expansion plans, investment weakens and job creation suffers.
The current slowdown shows that Bangladesh’s economic recovery is facing a difficult challenge. Banks are becoming more cautious about lending, while businesses are holding back from taking new loans amid uncertainty.
Why private credit is slowing
The biggest factor is the deteriorating condition of the banking sector.
Non-performing loans crossed Tk6 lakh crore by June 2026, accounting for more than 32 per cent of total outstanding loans. The rise in bad loans has weakened banks’ balance sheets, increased provisioning pressure and reduced their appetite for fresh lending.
Banks turn towards safer assets
Another factor behind the slowdown is the changing behaviour of banks.
With default risks rising, government securities have become an attractive option for lenders. Treasury bills and bonds provide relatively secure returns, while lending to businesses carries greater risks amid weak demand, uncertain cash flows and a challenging operating environment.
This has raised concerns over crowding out, as increased government borrowing may encourage banks to allocate more funds to public-sector financing rather than private businesses.
However, government borrowing alone does not explain the decline in private credit. The deeper issue is that weaknesses in the banking sector have reduced confidence in lending.
Businesses are holding back
The slowdown in private credit is not only a supply-side problem. Demand for loans has also weakened.
Many businesses are delaying expansion because the outlook remains uncertain. High lending rates, energy shortages, unreliable gas and electricity supplies, weaker consumer demand and policy uncertainty are making entrepreneurs more cautious.
For many companies, taking a loan today means accepting higher financing costs without certainty about future sales and profitability.
Impact on investment and growth
The decline in private credit is already affecting economic activity.
Lower lending means fewer new factories, slower expansion and weaker demand for capital machinery and industrial inputs. When businesses cannot access finance easily, productivity improvements and long-term investment decisions are delayed.
For an economy where private businesses account for a large share of employment and exports, prolonged weakness in credit growth could slow the pace of recovery.
A temporary slowdown in lending may not be alarming. But a prolonged period of weak credit can limit industrial expansion, reduce job creation and weaken future growth prospects.
The cost for ordinary people
The effects of a credit slowdown eventually reach households.
When businesses reduce investment, employment opportunities shrink. Young people entering the workforce face fewer openings, while existing workers face greater uncertainty over income growth.
Small and medium enterprises are particularly exposed. Unlike large corporations, many SMEs depend heavily on bank loans to manage daily operations, purchase inventory and expand their businesses.
When formal credit becomes difficult to access, smaller businesses are forced to scale back operations or turn to more expensive sources of finance.
The slowdown also affects household spending. As income growth weakens and uncertainty rises, consumers reduce spending, further weakening business demand.
Why rate cuts alone will not solve the problem
The central bank has reduced policy rates and introduced measures to encourage lending. But lower interest rates alone are unlikely to revive private credit.
The problem is not only the cost of borrowing. It is also a crisis of confidence.
Banks have liquidity but remain cautious because of rising bad loans and balance-sheet risks. Businesses may need financing but are reluctant to borrow because they are unsure about future returns.
Restoring credit growth requires stronger banking-sector governance, improved confidence and a more predictable business environment.
A challenge beyond reserves
Bangladesh’s earlier economic pressure came from a shortage of foreign currency. The next challenge is reviving the flow of credit that supports private-sector growth.
Rebuilding reserves has helped stabilise the external sector. But long-term economic recovery depends on whether businesses can access finance, invest and create jobs.
Addressing the private credit slowdown will require banking reforms, faster resolution of bad loans, reliable energy supply, disciplined government borrowing and policies that encourage entrepreneurs to invest.
