Private sector credit growth in Bangladesh rose marginally to 4.98% in May from 4.75% in April, but continued weakness in business borrowing is prompting banks to rely increasingly on government securities to sustain earnings, The Business Standard reported.

The slowdown in private-sector lending has led banks to shift their focus from traditional interest income to investment returns from treasury bills, government bonds and other sovereign securities. The trend marks a notable departure from 2021, when loan interest was the primary contributor to bank profitability.

Bankers and financial analysts attributed the shift to sluggish private investment, mounting non-performing loans (NPLs) and poor recovery of loans extended to several large corporate groups. They said lingering political and economic uncertainty has discouraged businesses from undertaking new investments, leaving banks with excess liquidity that is increasingly being deployed in government securities, which offer relatively attractive returns with minimal credit risk.

A treasury head at a commercial bank, speaking on condition of anonymity, said returns from treasury bills and government bonds are booked as investment income, making them an increasingly important revenue source as loan growth remains subdued.

A deputy managing director at a private bank said demand for bank credit had weakened significantly after the fall of the Awami League government, as many businesses either reduced operations or suspended production.

He said several factories owned by major business groups, including Nassa Group, Beximco Group and Gazi Group, have ceased operations, while many others are functioning at only 30-40% of capacity. As a result, companies have sharply reduced investment in new machinery and curtailed production, significantly lowering their borrowing requirements.

A senior commercial banker said the banking sector's long-term health depends on sustained expansion in private-sector lending rather than investment in government securities. While treasury bills and bonds currently offer attractive yields, any future decline in interest rates could erode investment income, underscoring the need for a revival in private credit demand to support both bank profitability and broader economic growth, The Business Standard added.