Banks Turn to Consumer Lending as Corporate Credit Demand Weakens

Bangladesh’s banking sector has experienced a notable shift towards consumer financing this year, driven by robust demand for flats and vehicles, despite comparatively sluggish activity in the real economy. According to the latest figures from Bangladesh Bank, consumer credit expanded by 26% year-on-year in June 2025, considerably outpacing the overall loan growth of just 8% recorded across public and private banks.

Key Loan Growth Indicators

The most dramatic surge occurred in auto and housing loans, reflecting shifting consumer priorities and banks’ strategic reorientation. Demand for credit to purchase home appliances, electronics, and furniture also strengthened, fuelled in part by lifestyle changes and rising urbanisation.

By the end of June 2025, the total stock of consumer loans had reached Tk 1.72 lakh crore, making retail lending an increasingly significant component of the banking system.

Banks Pivot Towards Retail Clients

Several banks have scaled down their exposure to corporate borrowers due to limited expansion in business activity and elevated risks in the industrial sector. A senior Dutch-Bangla Bank official noted that retail lending offers more diversification and lower default risks. Under current regulations, consumers may borrow up to Tk 20 lakh in personal loans, Tk 60 lakh for vehicles, and up to Tk 2 crore for home purchases.

Dutch-Bangla Bank—currently the largest player in housing finance—disbursed Tk 100 crore in home loans in November alone, its highest monthly figure to date. City Bank, another major lender, reported 20% growth in consumer credit in the first ten months of 2025. Its monthly disbursement rose to Tk 400 crore, supported by expanded auto loan limits and digital nano-loans via bKash.

Auto Loans Accelerate, Driven by Used Cars

Lenders report that the surge in vehicle loans has been propelled mainly by the thriving second-hand car market. IDLC Finance Ltd highlighted that financing for used cars—newly permitted—has widened access for middle-class buyers. Although high-end car sales dipped amid political unrest, IDLC still posted a 10% increase in its auto loan portfolio for 2025.

The taka’s depreciation has pushed up the cost of reconditioned cars, thereby increasing loan sizes. Sales of lower-priced reconditioned models (Tk 40–60 lakh) climbed sharply, supported by surplus liquidity in banks eager to deploy funds profitably. BARVIDA estimates that the automotive sector grew by at least 10% in the first ten months of 2025 and is poised for further expansion.

Why Consumption Remains Strong Despite Weak Investment

The World Bank’s Bangladesh Development Update (October release) shows that private consumption remained resilient, expanding by 5.2% in FY25 after growing 6% in FY24. This strength was underpinned by record remittance inflows and robust export performance.

Imports of consumer goods rebounded by 15.3% in FY25 after two consecutive years of contraction, signalling firm household demand. Meanwhile, export growth benefited from the taka’s depreciation and rising garment orders shifting from competing countries.

However, private investment remained subdued due to political uncertainty, elevated financing costs, expensive raw materials, and concerns over energy supply. Private sector credit growth fell to 6.5% in June 2025, the lowest in 22 years. Imports of capital machinery dropped by 10.2%, and public development spending contracted sharply by 25.5%.

Looking ahead, the World Bank expects GDP growth to pick up modestly to 4.8% in FY26, aided by easing inflation and stable consumption. Investment is likely to improve only marginally given the election-related uncertainty and banking sector vulnerabilities, while export growth is expected to remain resilient.

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