Businesses remain wary of borrowing despite improved banking governance: ABB chief

Businessmen remain wary of investing, importing capital machinery and taking loans despite the beginning of improvements in banking governance, said Mashrur Arefin, chairman of the Association of Bankers, Bangladesh (ABB).

Net private sector credit growth remains almost zero, said Arefin, also the managing director of City Bank, at a banking conference on Wednesday.

He pointed to improvements in the banking climate since the fall of the Awami League regime, when, according to him, there was serious governance failure.

“Whatever had happened in the past, was a serious governance failure. The culture cannot be corrected in a day or a year,” he said.

The Bangladesh Bank’s corrective measures, the re-constitution of bank boards and the appointment of new CEOs are signs of improvements in governance in the days ahead, Arefin said at the 11th Annual Banking Conference 2026 held at the Bangladesh Institute of Bank Management in the capital.

He, however, criticised a “policy mismatch” at Bangladesh Bank, which he said was offering expansionary packages while keeping interest rates high. He urged the monetary authority to align the two lending policies.

The benchmark interest rate has been kept at 9.5% to bring down the consumer inflation hover around 8.5%.

Arefin also questioned the reported private sector credit growth of around 4%. He said real net growth was doubtful after excluding accrued interest and forced loans.

Banks are not seeing demand for large letters of credit for capital machinery or factory expansion, he added.

The Purchasing Managers’ Index (PMI), which fell from 57.8 in July to 48.6 in September, signalling a shrinking economy. In the PMI, moving below the 50-point threshold separates expansion from contraction.

He also pointed to high inflation, stagnant exports and low imports, and said political uncertainty was behind businesses’ reluctance to use the credit lines banks had offered, despite the recent election.

On the positive side, he said the stable exchange rate should help attract foreign investment and that the current account was in surplus.

He also said the reopening of the IMF programme and the rollout of government mega projects could revive economic activity.

Arefin said the sector now knew the truth about non-performing loans, which stood at about 30 percent, compared with the 9 percent reported earlier. He called it the starting point for recovery.

Foreign lenders, he said, saw the sector as fractured, with a few strong banks, some struggling ones and others with negative capital.