Private sector credit is slowing at a pace not seen in recent years, with Bangladesh Bank’s latest quarterly review warning that weakening money growth, higher borrowing costs and rising excess liquidity are squeezing investment and amplifying economic risks.
Against this backdrop, the Quarterly Report on Money and Exchange Rates shows that broad money (M2) expansion has decelerated further, standing at about Tk21,746 billion by the end of June with annual growth of 6.95 per cent, well below the 8.4 per cent projection for April–June.
A year earlier, the growth rate was 7.74 per cent. According to the central bank, reduced growth in net domestic assets remains the principal factor behind this slowdown.
Building on this trend, domestic credit reached around Tk22,840 billion at the end of June, posting annual growth of 7.97 per cent, a marked decline from 9.8 per cent last year.
While government borrowing rose 13.09 per cent, private-sector credit increased by only 6.49 per cent. As a result, the private sector’s share of total domestic credit slipped from 77.58 per cent to 76.52 per cent over the quarter.
The report notes that higher borrowing costs continue to play a decisive role in weakening credit demand.
The deceleration is also reflected in reserve money, which stood at some Tk4,132 billion at end-June, growing just 0.89 per cent compared to 7.84 per cent in the same quarter of 2024.
Bangladesh Bank’s net claims on the domestic sector fell sharply, thereby contributing to the pronounced slowdown in reserve money expansion.
Consequently, liquidity conditions have shifted as well. Excess liquid assets climbed to about Tk2,927 billion at end-June, up from Tk2,388.46 billion in March.
The report explains that economic uncertainty, restrained spending and supply-chain disruptions have collectively dampened private-sector credit demand, leading to a build-up of idle liquidity across the banking system.
Alongside these developments, short-term interest rates (call money) rose during the review quarter, while both deposit and lending rates increased across banks.
Weighted average deposit and advance rates stood at 6.26 per cent and 12.08 percent respectively in June, compared to 6.17 percent and 12.04 per cent in March.
With the removal of the deposit floor, banks have been adjusting rates independently, and policy-rate hikes alongside the shift to market-based pricing further pushed borrowing costs.
Meanwhile, external-sector indicators paint a mixed picture. Exports amounted to $10,099 million and imports $15,045 million in April-June, leaving a merchandise trade deficit of $4,946 million.
However, support from the services and income balances helped produce a $794 million current-account surplus.
Increased inflows under other investments contributed to a $3,268 million surplus in the financial account, bringing the overall balance of payments to a surplus of $4,493 million.
Given these dynamics, the report concludes that Bangladesh Bank is formulating urgent and essential policies to stabilise prices – particularly food inflation – while supporting moderate domestic growth amid significant macroeconomic challenges.
At the same time, rising global trade concerns have prompted the central bank and government to work jointly to ensure credit flows to priority sectors such as agriculture, export-oriented industries, import-substituting industries and CMSMEs; reduce non-performing loans; restore comfortable liquidity levels; safeguard depositors; rebuild confidence; and strengthen governance across the financial system.
Analysts warn that private-sector credit expansion has slowed far more sharply than government borrowing, signalling a serious threat to the country’s overall growth momentum.
