Consumer financing has slowed as people adopt a slow strategy for taking out loans, given the upward trend in interest rates amid continued inflationary pressure.

Banks are also being very conservative in granting consumer credit amid uncertainty surrounding the recent political change, industry experts said.

As of September this year, the percentage of consumer credit to total loans stood at 8.62 percent, compared to 8.86 percent in the previous year, according to the latest data from the Bangladesh Bank.

The total outstanding loans in the banking sector stood at Tk 1,619,917 crore as of September this year, of which Tk 139,613 crore is consumer finance.

The percentage of consumer credit to total loans was 6.81 percent during the same period of 2020, 7.67 percent in 2021 and 8.44 percent in 2022.

Consumer credit, or consumer debt, is personal debt taken out to purchase goods and services. For example, a credit card is a type of consumer credit in finance.

Industry insiders said people resort to consumer credit mainly to buy lifestyle and luxury products.

However, they have been forced to reduce their spending on luxury goods in the face of economic difficulties. Still, some people take out consumer loans to meet their monthly expenses, they added.

From September last year to September this year, banks disbursed Tk 9,103 crore as consumer credit, compared to Tk 17,993 crore in the same period of the previous year, according to the central bank data.

Bank Asia continues to expand its retail lending or consumer financing, said its managing director, Sohail RK Hussain.

Home loans, personal loans, car loans and credit cards are the main areas of personal loans.

Credit growth in the retail segment is not substantial and remains insignificant compared to total loans in the banking sector, Bank Asia MD said.

People with middle and upper incomes mainly take out consumer loans, he explained, adding that professionals mainly take out this type of loan.

The real estate and automobile sectors were affected last year due to the foreign exchange loss of the local currency, the taka, against the US dollar, Hussain said, adding that the 100 per cent margin cent on letters of credit (LC) on luxury goods had an impact on retail lending.

Hussain also said that consumer credit or personal loans are growing due to increasing earning capacity of people and changing lifestyles.

From September last year to September this year, banks disbursed money for the purchase of consumer goods, apartments, credit card loans and salaries, according to bank data central.

Banks also lend for education expenses, medical treatment, wedding expenses, travel or vacation, business loans, transport loans, provident fund loans, personal loans against bonus schemes Depository Receipt (DPS), Personal Loans Against Fixed Deposit Receipt (FDR) and more. .

Mr Khurshed Alam, Deputy Managing Director of Eastern Bank, said consumer financing had slowed down due to inflationary pressures.

Inflation in Bangladesh hit a four-month high of 11.38 percent in November this year and has remained above 9 percent since March last year.

Alam said the Bangladesh Bank is trying to curb inflationary pressures by increasing the policy rate, which pushes up the lending rate. As a result, people avoid loans.

Keeping pace with general loan interest rates, the central bank recently increased the maximum interest rate on credit cards from 20 to 25 percent.

Rising credit card loan interest rates will impact consumer credit growth, Alam said.

Few banks offer consumer credit, so this segment still needs to grow, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

He said banks are allowed to lend a maximum of Tk 2 crore to each customer as home loan and a maximum of Tk 40 lakh as personal loan.

Rahman, also a former president of the Bangladesh Bankers’ Association, said banks are now very conservative when it comes to consumer credit as defaulted loans in this segment have also increased.