The commercial banks have relied heavily on consumer financing last year as industrial credit disbursement suffered a setback in the wake of the political unrest ahead of the national election held on January 5.

They had to go beyond Bangladesh Bank’s instruction to increase credit exposure in the productive sector instead of consumer financing, bankers said.

The consumer credit started growing from the beginning of last year due to lack of loan demand by the big entrepreneurs, said a senior executive of the central bank. 

He said the commercial banks are also interested in consumer financing as it helps increase interest earnings more than that of industrial term-loan.

“The consumer financing increased rapidly last year as industrial expansion and business activities remained almost stuck up and credit growth slowed down amid political turmoil,” said a senior executive of private bank.

In order to achieve credit growth target bank focused on agriculture sector and consumer financing last year, he added.

He said Bangladesh Bank had verbally asked the commercial banks to disburse loan focusing on agriculture and other sector as loan demand in industrial sector was very shy.

The consumer financing registered a substantial 32% growth in the first quarter (January-March) of 2013 compared to a negative growth of 5% in previous quarter (October-December) of 2012. During the same period total loan growth increased by 0.83% from 3.06%, according to the central bank data.

The consumer loan increased by 10.5% to Tk28,021 crore in April-June quarter of 2013 and over 18% to Tk33,140 crore in July-September quarter.

The industrial loan growth was negative by 3% to Tk1,47,361 crore in July-September quarter compared to the growth of 1.76% in the preceding quarter.

In January 2012, Bangladesh Bank had slashed the loan margin ratio to 70:30 from 80:20 in housing finance and the ratio for car loans and all other consumer financing to 30:70 from 50:50.

It brought the changes in the margin ratios against the backdrop of the rising trend of consumer loans despite repeated attempts by the regulator to discourage consumer loans.

The average credit growth of the banking sector was 15% in 2011 while the growth of consumer loan was 19%.

Consumer financing growth came down in 2012 due to the strong monitoring of Bangladesh Bank.

Credit growth to the agriculture sector increased by 7.34% in July-September of 2013 compared to the growth by 3.03% in the previous quarter.

Bangladesh Bank had issued a circular on April 25, 2012 asking the commercial banks not to exceed the consumer credit growth more than its total average growth of loan portfolios.

It took the measure to achieve a sustainable economic growth through increasing credit flow to the productive sectors by slashing loans from unproductive sectors, including consumer financing.

The central bank, however, overlooked the rising trend of consumer financing than industrial loan growth so the banks could achieve the credit target, said a senior executive of Bangladesh Bank.