Bangladesh’s private sector credit growth has plunged to its lowest level in 22 years, reflecting the country’s worsening investment climate amid high interest rates, political instability, and weak business confidence. According to the latest data from Bangladesh Bank, private sector credit growth dropped to 6.35 percent in August 2025 - down from 6.52 percent in July. The central bank noted that this is the lowest growth since 2003, highlighting the deep slowdown in both lending and investment activity.
Economists and bankers told The Daily Industry that a combination of rising borrowing costs, inflationary pressures, dollar shortages, and energy supply constraints has dampened private sector demand for new loans. The banking sector’s cautious approach and entrepreneurs’ reluctance to take risks have pushed credit expansion to a near standstill. Political Instability Deepens Business Stagnation: Since the change in government earlier this year, the country’s political environment has become increasingly volatile, affecting investor confidence and delaying major business decisions. Bankers say many large borrowers and industrialists are holding back new projects amid uncertainty about future policies and political stability. “Several influential business figures are currently staying abroad or refraining from new investments due to uncertainty over government policy direction,” said a senior executive of a private commercial bank, requesting anonymity while speaking to The Daily Industry.
“As a result, the demand for new loans in the market has nearly frozen.” The same source noted that Bangladesh Bank’s tightening of monetary policy - aimed at containing inflation - has made liquidity scarce and borrowing more expensive. Interest rates on commercial loans have increased significantly since early 2024, discouraging entrepreneurs from seeking new financing. Bangladesh Bank Data Paints a Grim Picture: As of the end of August 2025, the total outstanding loans to the private sector stood at Tk 17.47 trillion, compared to Tk 17.42 trillion in July - a marginal increase that underscores how sluggish credit growth has become. This marks a sharp contrast to previous years when the private sector credit growth averaged 12-14 percent before the COVID-19 pandemic. Even during the height of the pandemic in 2020-2021, credit growth never fell below 7.5 percent, as government stimulus packages kept liquidity flowing in the market. Economists are now alarmed that despite the economy being fully reopened, credit growth has fallen below even pandemic levels.
“Signs of Recovery Are Missing” - Experts Warn: “The most concerning aspect is that we are not seeing any signs of recovery,” said Dr. Zahid Hussain, former Lead Economist at the World Bank’s Dhaka office, in a comment to The Daily Industry. “Even during COVID, credit growth remained higher than now, thanks to government stimulus. But today, we have neither stimulus nor stability.” He noted that while Bangladesh Bank’s contractionary policy may help control inflation in the short term, it is slowing down economic growth by restricting money supply to productive sectors. “The central bank is walking a tightrope. If it tightens too much, investment will collapse; if it loosens too much, inflation will spiral. Unfortunately, right now, the focus seems excessively tilted toward controlling inflation at the cost of growth,” Hussain added.
Bankers Blame Risk Aversion and Weak Demand: Private banks are now more cautious about lending amid concerns over default risks and regulatory pressures. With non-performing loans (NPLs) rising and liquidity under stress, banks prefer to strengthen balance sheets rather than extend new credit. “Banks are reluctant to take on additional exposure given the growing number of defaulters,” said Mahbubur Rahman, Managing Director of a mid-sized commercial bank. “At the same time, entrepreneurs themselves are not confident enough to expand operations due to the volatile political and economic environment.”
According to Rahman, industrial clients - especially in textiles, cement, and construction - are holding off on borrowing because of uncertainty in gas and electricity supply. “Even if a factory wants to expand, without reliable energy, the investment makes no sense,” he added.
Central Bank’s Tight Money Policy Adds to the Slowdown: Bangladesh Bank has maintained a strict monetary stance throughout 2024 and 2025, raising policy rates to curb inflation that has hovered around 8-10 percent. The repo rate has been adjusted upward several times, effectively pushing commercial lending rates into the 12-14 percent range. In addition, the central bank has limited broad money supply (M2) growth to slow overall credit expansion, aiming to bring inflation closer to its target range. However, this has come at the expense of liquidity in the banking system, restricting funds available for private sector borrowers.
“The central bank’s anti-inflation strategy has inadvertently throttled credit growth,” said Dr. Ahsan H. Mansur, Executive Director of the Policy Research Institute. “It’s like trying to treat a fever by starving the patient - the illness may subside, but the body weakens. The same is happening to the economy.”
Historical Low Reflects a Deeper Confidence Crisis: The data show a steady decline in private sector credit growth over the past year: December 2024: 7.28%, January 2025: 7.15%, February 2025: 6.82%, May 2025: 7.17%, August 2025: 6.35% (22-year low). In comparison, in May 2021, credit growth had dipped to 7.55 percent, but rebounded to 8.35 percent the following month. This time, experts see no similar rebound on the horizon.
“This is not just a cyclical dip; it’s a structural problem,” said Dr. Selim Raihan, Executive Director of SANEM. “We are witnessing the combined effect of weak business confidence, high borrowing costs, and policy uncertainty. Unless political stability and consistent economic reforms are restored, credit demand will continue to shrink.”
Energy Crisis and Production Constraints: Adding to the pressure, the country continues to face a chronic gas and electricity shortage, particularly in industrial zones. Many factories in Gazipur, Narayanganj, and Chattogram have been operating below capacity, reducing their need for working capital loans.
“Industrial expansion is now almost on pause,” said Abdur Rahman, President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA). “Entrepreneurs can’t plan new projects when they’re unsure whether they’ll have gas or power to run machines. Without reliable energy, loan demand naturally declines.” He added that the banking system’s instability, coupled with delayed import LC approvals due to the dollar shortage, has further discouraged investment.
Policy Uncertainty Keeps Investors on the Sidelines: The post-government transition period has introduced significant uncertainty over fiscal and trade policies, taxation, and banking reforms. Business leaders told The Daily Industry that frequent policy changes and lack of clear direction are making long-term investment planning nearly impossible.
“Entrepreneurs don’t invest in uncertainty,” said Anis A. Khan, former Chairman of the Association of Bankers Bangladesh (ABB). “Until there’s political stability and policy consistency, private investment will remain weak - and so will credit growth.”
Economists Urge Coordinated Policy Response: Experts are now calling for a coordinated fiscal and monetary response to revive private investment. They suggest the government should restore confidence by ensuring political stability, improving energy supply, and offering targeted incentives for productive sectors.
“The government must recognize that the private sector is the engine of growth,” said Dr. Mansur. “Without credit flow, no new factories will open, no jobs will be created, and no exports will rise. Stabilizing the business environment should now be the top priority.”
Growth May Slow Further: Analysts warn that if current trends persist, private sector credit growth could fall below 6 percent by the end of 2025, dragging down overall GDP growth and employment generation. While Bangladesh Bank insists that the tight policy stance is necessary to curb inflation, economists fear that prolonged credit contraction could trigger a deeper investment recession. In the words of Dr. Hussain, “We are at a crossroads. Either the government restores business confidence through stability and reform - or the economy risks slipping into a prolonged stagnation.”
Bangladesh’s private sector credit growth has fallen to 6.35 percent - the lowest level in 22 years - reflecting a dangerous mix of political uncertainty, high lending costs, and business pessimism. Without a clear strategy to restore investor confidence, experts warn that the country’s investment engine may continue to sputter, endangering the fragile recovery and future growth momentum.
