New Delhi, Aug 6 (IANS) Bangladesh’s central bank last week trimmed its policy rate by 50 basis points to 9.5 per cent to ease funding costs for distressed lenders but it may fail to check an “alarming slowdown in private investment,” a new report has said.
The report from Hong Kong-based Asia Times said the cut aimed to address weak corporate demand, with credit to private firms expanding just 4.98 per cent YoY in May, down from 7.17 per cent the previous year.
The credit growth was at “a sluggish pace for a country aspiring to rapid industrialisation.”
Meanwhile, public sector credit surged 20.78 per cent, the report added, signalling that state borrowing has become the main engine of domestic credit creation.
“Lowering central-bank funding costs is intended to reduce commercial lending rates and render stalled capital projects viable once again. However, the true impediment to expansion is not the price of money, but a dearth of viable corporate demand,” the media house said.
However, monetary easing has some limits to revive credit demand as infrastructure shortfalls, frequent gas and power interruptions may not revive stalled projects.
Similarly, non-performing loans climbed to nearly 5.89 lakh crore taka ($47.65 billion) by late March, exceeding 32 per cent of total outstanding loans, which could discourage lenders from extending new loans.
“Aggregate liquidity masks deep institutional fragility, leaving weak banks incapable of extending productive credit regardless of central bank policy,” the report said.
Downplaying the effect of a modest half-point reduction in borrowing costs, the media house said that “the financial penalty of idle capacity, backup diesel generators, and missed export deadlines far outweighs minor savings on bank loans.”
The World Bank estimated that the system’s capital-to-risk-weighted-assets ratio dipped to -2.6 per cent by 2025-end. Lenders burdened by bad debts are tempted to hoard capital, restrict lending to a narrow tier of safe blue-chip clients, or buy government securities.
—IANS
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