Banks turn to govt securities as private credit growth still sluggish at 4.98%

Private sector credit growth edged up to 4.98% in May from 4.75% in April, but weak loan demand continues to push banks towards government securities as a key source of earnings.

With businesses borrowing less, banks have increasingly relied on investment income from treasury bills, bonds and other government securities rather than traditional interest income. The trend marks a sharp reversal from 2021, when interest income accounted for the bulk of banks' earnings.

Bankers and analysts attribute the shift to sluggish private investment, rising non-performing loans (NPLs) and weak loan recovery from several large business groups.

They say political and economic uncertainty has also discouraged fresh investment, prompting banks to channel excess liquidity into government securities, which offer attractive yields and carry virtually no credit risk.

Requesting anonymity, a treasury head at a commercial bank told The Business Standard that income from treasury bills and bonds is recorded as investment income.

State-owned Sonali Bank's net interest income fell by more than Tk1,100 crore in 2025 to Tk337.23 crore from Tk1,490 crore a year earlier. In contrast, its investment income rose to Tk9,799 crore from Tk6,414 crore.

Eastern Bank's annual report showed net interest income declined 7% in 2025, while non-interest income increased 32%.

BRAC Bank reported a 13% fall in net interest income in 2025 after a 24% decline in 2024. Meanwhile, its investment income jumped 78% in 2025 following a 181% surge the previous year.

The contrast is stark with 2021, when the country's 52 major banks generated a combined Tk40,793 crore in income, with interest income contributing 47% of the total.

A deputy managing director of a private bank said many businesses scaled back or shut operations following the fall of the Awami League government, sharply reducing demand for bank credit.

Several factories owned by large business groups, including Nassa Group, Beximco Group and Gazi Group, have closed, while many others are operating at only 30-40% of capacity, he said. "When factories were operating normally, they imported capital machinery. Now even those that remain open have cut production by 60-70%."

A senior commercial banker said sustainable banking growth ultimately depends on expanding credit rather than investment in government securities. While treasury bills and bonds currently provide attractive returns, lower yields in future could reduce banks' investment income. 

Stronger private-sector borrowing, he said, remains essential for both banks and the broader economy.