Private sector credit growth in Bangladesh edged up to 4.98 per cent in May from 4.72 per cent in March, but remained near a record low, reflecting continued weakness in business investment and bank lending.

Bangladesh Bank data showed that private sector credit growth stood at 6.1 per cent in December and 6.03 per cent in both January and February before falling to 4.72 per cent in March, the lowest level since the central bank began compiling the data in 2003.

Although lending recovered slightly in May, the growth rate remained less than half of the 10.13 per cent recorded in July 2024, before political and economic uncertainty triggered a prolonged slowdown in private sector borrowing.

Economists said that many businesses postponed expansion plans amid policy uncertainty, persistently high inflation, weak domestic demand and an unfavourable investment climate.

Despite political stability following the February 12 national election, business confidence has yet to recover significantly, they said.

They also attributed the sluggish credit growth to mounting stress in the banking sector, tight monetary policy and heavy government borrowing from banks.

In its monetary policy statement for January-June 2026, Bangladesh Bank said weak loan demand, liquidity shortages and increased government borrowing had contributed to the slowdown.

Government borrowing has emerged as a major factor squeezing credit available to businesses.

During July-April of FY26, net government borrowing from the banking system reached Tk 99,864 crore during July-April of FY26, accounting for 99 per cent of the revised annual target.

Economists said such borrowing absorbs a large share of banks’ available funds, leaving less liquidity for private sector lending at a time when many banks are already facing cash shortages.

The banking sector’s deteriorating financial health has further constrained lending.

Defaulted loans stood at Tk 5.88 lakh crore at the end of March 2026, accounting for more than one-third of total outstanding loans.

High levels of bad loans force banks to set aside large provisions against potential losses, reducing both profitability and their capacity to extend fresh credit.

Borrowing costs have also remained elevated. Bangladesh Bank’s policy interest rate stands at 10 per cent, while lending rates in many cases are close to 15 per cent, making bank financing increasingly expensive for businesses, particularly small and medium enterprises.

The impact of weak credit growth is already visible across the economy.

Imports of capital machinery have declined, signalling slower industrial expansion, while many factories are operating below capacity due to weak demand and shortages of working capital.

Lower private investment has also reduced business activity and slowed employment generation, raising concerns about broader economic growth.