A weaker demand for credit and a cautious stance of banks on fund management have pulled down their lending in recent months.

The credit-deposit ratio, an important indicator to understand the demand for money, has gone down to 76 percent at the end of December 2012, from more than 90 percent in the same month a year ago.

Bangladesh Bank rules allow commercial banks to invest maximum 85 percent of their deposits, while Islamic banks and Islamic wings of the banks can invest up to 90 percent.

But loans given by many banks exceeded the BB limit till September 2012.

But the situation went into reverse since the last quarter of the year when banks began to cut back on loans due to pessimistic perspectives on politics and economy.

“Banks' credit to all sectors -- from export to import, capital market and new credit -- witnessed a slowdown in 2012,” said Nurul Amin, managing director of NCC Bank and the chairman of the Association of Bankers Bangladesh, a forum of banks' chief executives.

Monzur Hossain, a research fellow of the Bangladesh Institute of Development Studies, said high interest rates and scams in the financial sector have also played a role in squeezing the credit market.

“Economic growth and employment generation will be hampered if there is less investment,” said Hossain.

But a weaker demand for credit does not mean that banks hold huge surplus funds.

Many banks, especially the primary dealer banks, have a huge exposure to government bills and bonds, according to Amin of NCC Bank.

NCC Bank has Tk 1,600 crore investments in government securities. Prime and Uttara banks each has Tk 3,000 crore investments in the securities.

Due to a bank-based financial system in the country, the existing firms and new entrepreneurs depend heavily on banks instead of raising funds from the capital market.

Credit appetite seems to be waning in line with the slowdown in economic activities, according to BB data. Banks, which were facing a severe shortage in deposits, however, witnessed a 20.32 percent growth in deposits in 2012 although the growth in credit was only 15.62 percent.

Banks saw a sluggish credit growth although the central bank raised the limit for private sector credit growth to 18.3 percent for the second half of 2012.

Four banks' credit growth was negative in 2012 and eight banks were at the single-digit level out of 47 banks operating in the country. The four banks are ICB Islamic Bank (-23 percent), Jamuna (-2.69 percent), State Bank of India (-11.89 percent) and Bank Al Falah (-0.05 percent).

Eight banks, whose credit growth was in single digit, are The City Bank, NCC, Bangladesh Commerce, Premier, Trust, Citibank NA, Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank.

Of the state banks, Rupali's credit growth was highest at 18.08 percent followed by Janata's 17.57 percent. Private banks, especially the Islamic ones, had relatively better credit growth.

Social Islami Bank's credit grew by 40 percent and First Security Bank posted a 39 percent growth. IFIC Bank's credit rose by more than 19 percent.

Citibank NA, which is one of the largest foreign commercial banks in Bangladesh, had only 1.34 percent growth in its credit in 2012.

Banks were very cautious in giving loans in 2012, particularly due to some scams in the banking industry, said Shafiqul Alam, who joined Jamuna Bank as its managing director last month.

“We hope to overcome the hurdles in the current year,” said Alam.