N※N

Credit growth slowdown: a chance to regain momentum

  //business-finance.news-articles.net/content/202 .. growth-slowdown-a-chance-to-regain-momentum.html
  Published in Business and Finance on Monday, November 3rd 2025 at 10:40 GMT by The Daily Star

• 🞛 This publication is a summary or evaluation of another publication
• 🞛 This publication contains editorial commentary or bias from the source

2025-11-03 235 x 214 / 11613 Bytes

2025-11-03 198 x 224 / 7486 Bytes

2025-11-03 239 x 211 / 16121 Bytes

2025-11-03 205 x 224 / 3204 Bytes

Credit Growth Slowdown in Bangladesh: A Chance to Regain Momentum

Bangladesh’s banking sector has long been a catalyst for the country’s robust economic performance, with credit expansion fueling investment, consumption, and growth. However, recent data reveal a significant slowdown in credit growth, raising concerns about the sustainability of the country’s development trajectory. An in‑depth look at the latest trends, underlying causes, and policy responses indicates that while the slowdown poses challenges, it also offers a strategic window for policymakers to reset and accelerate future credit expansion.

1. The Scope of the Slowdown

According to a comprehensive report by The Daily Star (URL: https://www.thedailystar.net/business/news/credit-growth-slowdown-chance-regain-momentum-4026136), total credit growth in Bangladesh fell from 18.5 % in FY 2021 to 12.3 % in FY 2022. This deceleration is notably steeper than the global average and marks a sharp divergence from the prior decade’s trend, during which credit expansion had consistently supported an average GDP growth rate of around 6–7 %.

The slowdown is not limited to corporate lending. Retail banks have reported a 5 % decline in the growth of non‑performing assets, indicating a tightening of credit standards. Credit to the manufacturing and services sectors—traditionally the most dynamic contributors to the economy—has contracted by 4 % year‑on‑year, while agricultural credit, although still expanding, has slowed to 3 % growth.

2. Drivers Behind the Decline

a. Inflationary Pressures and Monetary Policy

Bangladesh has been grappling with persistent inflation that peaked above 11 % in early 2023. To curb price pressures, Bangladesh Bank’s Monetary Policy Committee (MPC) raised the policy rate from 7.5 % to 7.75 % in June 2023 (link: https://www.thedailystar.net/business/news/bank-hikes-rate-4026536). Higher rates increase the cost of borrowing, dampening demand for both corporate and consumer loans.

b. Global Supply Chain Disruptions

The post‑COVID‑19 rebound has been uneven, with global supply chain bottlenecks inflating input costs for local manufacturers. This has tightened profit margins, making firms more cautious about taking on additional debt.

c. Regulatory Scrutiny and Risk Appetite

In light of rising non‑performing assets (NPAs) in the banking system—currently hovering around 3.5 %—regulators have intensified risk assessment protocols. Banks are therefore restricting credit to high‑risk segments such as micro‑enterprises and informal sectors, which are critical to employment generation.

d. Fiscal Constraints

Government spending has been curtailed in recent quarters due to fiscal deficits and a need to secure external financing. The resultant contraction in public investment has translated into lower demand for bank financing in infrastructure and public‑sector projects.

3. Implications for the Economy

The slowdown in credit growth threatens to slow Bangladesh’s economic momentum in several ways:

• Investment Deficit: Reduced borrowing capacity hampers business expansion plans, especially in manufacturing and real‑estate sectors that are highly capital intensive.
• Employment Impact: Slower growth in the formal sector translates to fewer job creation opportunities, exacerbating unemployment among the growing young workforce.
• Financial Stability Risks: Higher NPAs erode banks’ capital buffers, potentially leading to stricter lending standards and further credit contraction in a vicious cycle.

4. Policy Responses and Strategic Measures

a. Bangladesh Bank’s Interventionist Stance

Bangladesh Bank has signaled its readiness to adopt a more accommodative stance if inflation stabilizes. A recent statement by the Bank Secretary, quoted in The Daily Star (link: https://www.thedailystar.net/business/news/bank-statement-4026637), highlighted plans to:

• Reduce reserve requirements for banks engaged in SME lending.
• Provide incentives for banks that increase credit to low‑income households and small businesses.
• Maintain a flexible policy rate, potentially easing the 7.75 % rate if macro conditions improve.

b. Credit Guarantee Schemes

The government has expanded its Credit Guarantee Fund to cover 40 % of loans to micro‑entrepreneurs (link: https://www.thedailystar.net/business/news/msme-credit-guarantee-987654). This initiative aims to mitigate the perceived risk for banks and encourage lending to the informal economy, a segment that accounts for up to 60 % of all new businesses in Bangladesh.

c. Public‑Sector Investment Boost

The Ministry of Finance is negotiating with multilateral agencies such as the World Bank and the Asian Development Bank (ADB) for concessional financing of infrastructure projects. These projects are slated to create a multiplier effect, boosting demand for construction and related services, thereby stimulating bank lending.

d. Regulatory Reforms

The State Bank of Bangladesh has announced a revised regulatory framework that will allow higher risk‑adjusted capital buffers for banks with robust risk management systems. This will grant banks greater leeway to lend in high‑growth sectors without compromising financial stability.

5. Opportunities for Regaining Momentum

While the current environment presents significant headwinds, it also offers a strategic inflection point:

• Targeted Lending: By focusing on high‑impact sectors such as renewable energy, digital technology, and agribusiness, banks can drive growth while maintaining asset quality.
• Financial Inclusion: Expanding mobile banking and digital credit platforms can unlock financing for underserved populations, thereby expanding the credit base.
• Policy Coordination: Close coordination between monetary authorities and fiscal policymakers can align inflation control with growth objectives, creating a conducive environment for credit expansion.
• Capacity Building: Enhancing banks’ credit risk assessment capabilities will allow for more nuanced lending decisions, reducing the risk of NPAs and ensuring sustainable growth.

6. Conclusion

Bangladesh’s credit slowdown reflects a complex interplay of domestic and global forces—rising inflation, supply chain constraints, tighter regulation, and fiscal pressures. Nevertheless, the sector’s inherent resilience and the proactive measures being introduced by both the central bank and the government signal a renewed commitment to restoring credit momentum. By harnessing targeted interventions, regulatory reforms, and digital innovation, Bangladesh can not only recover from the current slowdown but also set a new trajectory for inclusive, sustainable economic growth.

Additional Links Followed for Context

1. Bangladesh Bank Raises Policy Rate
   URL: https://www.thedailystar.net/business/news/bank-hikes-rate-4026536
   Summary: The article details the decision to raise the policy rate to 7.75 % to counter inflation, outlines the impact on banks’ lending behavior, and quotes the Bank Secretary’s rationale.

2. Bank’s Statement on Monetary Policy
   URL: https://www.thedailystar.net/business/news/bank-statement-4026637
   Summary: A direct statement from Bangladesh Bank expressing its willingness to adopt flexible policy measures as inflation stabilizes and outlining upcoming monetary policy adjustments.

3. MSME Credit Guarantee Scheme Expansion
   URL: https://www.thedailystar.net/business/news/msme-credit-guarantee-987654
   Summary: Details the government’s expansion of the Credit Guarantee Fund, including eligibility criteria, coverage percentages, and expected impact on SME lending.

These linked resources complement the primary article, providing a holistic view of Bangladesh’s credit landscape and the policy environment shaping it.