The just announced national budget is expected to offer a good business opportunity for the commercial banks operating in the country, after having a hard time in last couple of years.

Bankers have foreseen the prospect based on the measures proposed in the budget for next fiscal year in enhancing both public and private investments.

They are, however, considering how the banking sector would face challenges like the private investors do not suffer from non-availability of fund due to increased public financing.

The increased demand for fund might also push up the lending rate as well as the inflation – which are also being considered as other major challenges.

“High borrowing target is good for the economy as it reflects the government’s efficiency of implementation the mega project that has been taken in the new budget,” said NCC Bank Managing Director Golam Hafiz Ahmed.

He said more project implementation would raise demand for credit in the private sector as employment and import of raw materials would be increased. “When the demand will increase both in private and public sector, the credit-deposit ratio will increase, which will help the banks to make more profit.”

The existing average credit-deposit ratio of the banks remained at around 70% and there is a chance it would be increased up to 81%. That means the banks now disbursing loans of Tk70 against deposit of Tk100, despite they can disburse up to Tk81, he said. The banks’ have made profit less than expected, as a result.

“The lending rate though remained on the down trend at present, it will climb up in the new fiscal year due to the expected rise in credit demand,” said the senior banker.

He further said the private sector is unlikely to be crowded out if the projects are implemented with foreign financing. Foreign fund inflow would have double effect as it would have to be converted into local currency after entering into the country, and it would enrich the reserve.   

He was, however, skeptical about the banking business as all depend on the budget implementation and political stability. “If the projects are implemented efficiently, the banks will get the opportunity of doing good business.”

Though it is a challenge to maintain a balance between public and private credit, “we hope the private investment will not be affected as the government borrowing will remain within the target,” said Pubali Bank Managing Director Helal Ahmed Chowdhury.

“The government cannot not utilise its full space of borrowing target according to our earlier experience. So, if the borrowing reaches even at the ceiling, private sector will not be affected much as the banks have enough liquidity to face the demand.”

The banking business went sluggish for more or less a couple of years due to poor credit demand amid prolonged political unrest, resulting in poor performance particularly in the just concluded year of 2013.

The banks had to take cover of a relaxed loan rescheduling guideline to give some dividend for the year 2013.

“If the government reaches the borrowing target, it would put some pressure on inflation,” said Bangladesh Bank Chief Economist Hassan Zaman.

“We do not think the government will reach the target as it could not reach there as of now. We think it will not be able to utilise the full space of the borrowing target eventually.”

Hassan Zaman foresees the big size budget would not be implemented fully because it is not possible to improve implementation capacity over night.

“We see an implementation gap between actual and revised budget every year, which would be continued in the new fiscal year too. As a result, domestic borrowing target will not be fulfilled. So we do not have concerns about our monetary program.”

However, he said, if the government really reaches the borrowing target anyway, it would then be a risk on inflation, he added.  

Bank borrowing from banking system by government remained slow since several months and it stood at Tk23,000 crore at the end of May this year while Tk20,000 crore has already been repaid, according to the Bangladesh Bank data.

The borrowing target for the next fiscal year has been set at Tk31,221 crore, which is 20% higher from Tk25,993 crore set for the outgoing fiscal year.