Economic Stagnation Triggers Historic Private Credit Decline

The pulse of Bangladesh’s private sector has slowed to a historic low, with bank credit growth dipping to 6.20% in December 2025. This marks the seventh consecutive month that lending has languished below the 7% threshold, signaling a profound cautiousness among the nation’s entrepreneurs and industrialists.

This deceleration is a stark contrast to the 7.2% target projected by the central bank, suggesting that the “engine” of the economy is idling amidst a perfect storm of political uncertainty and high operating costs.

A Climate of Investment Reluctance

Economic experts point to a “wait-and-see” approach currently adopted by major business houses. According to Professor Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue (CPD), the lack of new work orders and the prevailing political environment have effectively frozen new investment.

“If new investment does not increase, bank credit will not expand,” he noted, warning that this trend could exacerbate unemployment and drag down GDP growth. The central bank’s persistent use of a high 10% policy rate to combat an 8.49% inflation rate has pushed lending rates to a daunting 11–12%, making expansion a prohibitively expensive gamble for most firms.

Comparative Credit Growth Data (2024–2025)

Industrial Fallout and the Machinery Gap

The real-world impact of this credit crunch is most visible in the manufacturing sector. Large conglomerates—including Beximco, Nassa, and Gazi groups—have seen factory closures or massive production cuts of up to 70%.

A key indicator of this industrial retreat is the 16% decline in the settlement of liabilities for capital machinery imports during the latter half of 2025. When factories stop importing the tools of production, it signals a long-term halt in expansion. Mohammad Hatem, President of the BKMEA, highlighted that many garment exporters are now actively reducing their reliance on bank borrowing to avoid the crushing weight of interest payments.

Banks Pivot to Sovereign Debt

With private demand for loans evaporating, commercial banks have fundamentally shifted their business models. Instead of lending to businesses, they are channelling their liquidity into government securities.

• Risk-Free Returns: Banks are currently earning roughly 11% interest on Treasury bills and bonds, which carry zero risk compared to private sector loans.

• Crowding Out Effect: The government’s heavy borrowing—over Tk 10,000 crore above its regular schedule in late 2025—has created a lucrative “safe haven” for banks.

• Artificial Profitability: Stronger private banks are reporting healthy profits not because they are supporting the economy, but because they are acting as the state’s primary creditors.

While this shift protects the banking sector’s immediate balance sheets, it indicates a worrying disconnect: the state is absorbing the capital that should be driving private enterprise.