Private-sector-credit growth crossed 16 per cent in May-the highest in last three and a half years-as sustained political stability encouraged entrepreneurs to borrow more for expanding their businesses, bankers said.
Falling trends in interest rates have also contributed to the increase in the private-sector-credit growth following foreign-currency loans having been converted to local-currency ones by corporate entities.
The growth in credits to private sector was up to 16.40 per cent in May 2016, on a year-on-year basis, from 15. 56 per cent last April, according to central bank's latest statistics. The credit growth was 15.16 per cent in March.
"The private-sector-credit growth is now on right track to support the target of higher economic growth set by the government," Biru Pasksha Paul, the chief economist at the Bangladesh Bank (BB), told the FE Wednesday.
The chief economist also said the central bank was now working to formulate the next monetary policy which will examine where the private-sector credit is going.
Talking to the FE, another BB official said the private-sector credits grew significantly as political stability along with confidence level of the entrepreneurs in the government improved gradually.
He also said such upward trend may continue in the coming months as development activities, particularly in infrastructure, have been boosted in the recent months.
Private-sector-credit growth has already surpassed the target set by the central bank in its monetary policy for the January-June period of the outgoing fiscal year.
The central bank had projected that private-sector credits would grow at 14.8 per cent in June 2016 from 13.8 per cent in December 2015.  
Credit demand for infrastructure development-related businesses, power, steel and engineering sectors has increased significantly during the period under review, according to a senior official of a leading private commercial bank (PCB).
The private banker also said a section of corporate entities prefer local- currency loan to foreign ones to avoid foreign exchange-volatility risk.
"We're now offering lower interest rates on short-term lending to the corporate clients aiming to use our excess liquidity," he explained.
The weighted average rates on lending came down to 10.64 per cent in April last from 10.78 per cent in the previous month, the BB data showed. It was 10.91 per cent in February.
The total outstanding loans with the private sector rose to Tk 6540.17 billion in May 2016 from Tk 5618.63 billion in the same month of 2015. It was Tk 6447.34 billion in April last.
Meanwhile, the overall excess liquidity with the commercial banks has started showing a downturn due to higher credit growth, particularly in the private sector, another BB official explained.
The excess liquidity came down to Tk 1.16 trillion as of May 26 from Tk 1.17 trillion in the first week of the same month, the BB data showed.
"We expect that the declining trend in excess liquidity with the banks may continue in the coming months, if the existing private-sector-credit flow persists," the central banker noted.
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Source: The Financial Express