Private sector credit growth in Bangladesh has fallen to a historic low, underscoring deepening stress in investment activity as political uncertainty, elevated interest rates and banking sector fragilities continue to weigh on business confidence.
Recent Bangladesh Bank data shows that private credit growth slipped to 6.03 per cent in January, down from 6.1 per cent in December and far below the 10.13 per cent recorded in July 2024.
Although the indicator briefly rose to 6.58 per cent in November, analysts say the uptick largely reflected loan restructuring ahead of the February 12 national election rather than fresh investment in productive sectors.
In its January–June 2026 monetary policy statement, the central bank attributed the slowdown to tight monetary conditions, higher government borrowing to finance the budget deficit and subdued loan demand amid continued uncertainty over new investment decisions.
The downtrend has been persistent. Private credit growth stood at 6.29 per cent in September, 6.35 per cent in August, 6.52 per cent in July, 6.40 per cent in June, 7.17 per cent in May and 7.5 per cent in April. The sharp fall from 10.13 per cent in July 2024 came in the wake of the political transition in August that year.
Economists say prolonged political uncertainty, weak business sentiment and structural weaknesses in banks have discouraged fresh investment, prompting many firms to defer expansion plans despite the BNP’s landslide victory in the February election.
Newly appointed Bangladesh Bank Governor Md Mostaqur Rahman has signalled policy support to revive private lending and restore economic momentum.
On his first day in office, he said lending rates would be reviewed to encourage investment and emphasised the need to reopen shuttered factories and business establishments, indicating a possible shift away from the prolonged contractionary stance.
Bankers, however, caution that borrowing costs are only part of the problem.
Rising government borrowing has also tightened liquidity in the banking system. During July–December of FY26, net credit to the government reached Tk50,782 crore, equivalent to 43 per cent of the revised annual target of Tk1.18 lakh crore.
Net government borrowing from banks rose 32.8 per cent by December 2025, effectively crowding out private borrowers in an already constrained liquidity environment.
Banks are simultaneously grappling with surging non-performing loans, which climbed to a record Tk6.44 lakh crore at the end of September 2025, roughly one-third of total outstanding loans.
The elevated default burden has weakened bank capital positions, increased provisioning requirements and made lenders more cautious in approving fresh credit.
Liquidity pressures and slow deposit growth have added to the strain. In a bid to tame inflation, the central bank earlier raised the policy rate to 10 per cent, pushing commercial lending rates close to 15 per cent and discouraging businesses, particularly small and medium-sized enterprises, from taking new loans.
