Highlights:

In the first four months of the 2025-26 fiscal year (July–October), the government repaid more to the central and scheduled banks than it borrowed, resulting in a net repayment of Tk3,439 crore.

Bankers and economists attribute the trend to declining government development spending and lower interest rates on treasury bills and bonds, which have reduced banks' appetite for government debt.

Of the total, the government repaid an additional Tk900 crore to the central bank and Tk2,540 crore to scheduled banks. Despite this, it borrowed Tk12,501 crore from non-banking sources, including non-bank financial institutions, insurance companies, and private investors.

The government's borrowing target from the banking sector for the fiscal year was set at Tk1.04 lakh crore, but net borrowing in the first four months reached only Tk9,062 crore, or 8.71% of the annual target. According to Bangladesh Bank data, the total government debt in the banking sector stood at Tk6.33 lakh crore as of October 30, down from nearly Tk7.57 lakh crore in June.

Bankers say the interim government's lack of major mega projects has reduced demand for borrowing, while overall import contraction has lowered credit demand in both public and private sectors. A senior Bangladesh Bank official told The Business Standard, "Once a new government takes office and mega projects begin, government borrowing will increase."

According to the Implementation Monitoring and Evaluation Division (IMED), the development budget for the current fiscal year targets Tk2.38 lakh crore in expenditure. However, only Tk12,158 crore has been spent in the first three months, just 5% of the annual goal.

A banker noted, "With lower imports, private sector credit demand has dropped. When the government does not increase spending on development projects, businesses import less, reducing commercial loan demand."

Why non-bank borrowing surged

Traditionally, the government borrows heavily from the banking sector to finance the budget deficit, with significant portions coming from scheduled banks and the central bank. A Bangladesh Bank official explained that lower borrowing from banks is primarily due to weaker government demand for loans and higher borrowing from non-bank sources.

"Several insurance companies and corporate investors have increased their investments recently," the official said. "Companies like Grameenphone and bKash have invested heavily in treasury bills and bonds, along with provident funds from organisations including BCB. Non-bank institutions often submit lower bids than banks in auctions, making it cost-effective for the government to borrow from them."

Last fiscal year, banks earned a significant portion of profits from investing in government treasury bills and bonds, which offered rates above 12%. Currently, rates have fallen closer to 10%, reducing scheduled banks' appetite, while private sector borrowing remains sluggish.

Private sector credit hits four-year low

Credit growth in Bangladesh's private sector fell to 6.29% in September, the lowest in four years, according to central bank data. The downward trend has persisted since August 2024, with growth at 6.35% in August, 6.52% in July, 6.40% in June, 7.17% in May, and 7.5% in April.

M Masrur Reaz, chairman and CEO of Policy Exchange of Bangladesh, said the slowdown is unsurprising given current economic conditions: "Overall investment is sluggish, domestic consumption is weak due to high inflation and slow job growth, and trade credit demand remains low as imports have not fully normalised. This indicates broader economic stagnation, particularly affecting manufacturing and services, and may impact employment in small businesses."

Mati ul Hasan, managing director of Mercantile Bank PLC, noted that while exports and remittances remain strong, capital machinery imports—especially for the ready-made garments and spinning sectors—have dropped. "With lower loan demand, banks with surplus liquidity are investing more in treasury bills and bonds, which reduces their interest income. Both excess liquidity and a liquidity crunch can be harmful to the sector," Hasan added.

Bank borrowing / non-bank borrowing