Bangladesh Cuts Rates for the First Time in Six Years, But Businesses Still Won't Borrow

Cheaper Money, Fewer Buyers

Bangladesh Bank spent two years holding its policy rate at a punishing 10 percent, betting that expensive money would eventually tame inflation and could then be safely loosened. On July 30, it finally cut, trimming the rate by 50 basis points to 9.5 percent, the first reduction in six years. Deposit rates in the market now sit around 7 to 8 percent, prime corporate borrowers can get loans from banks like BRAC Bank at 9 to 10 percent, and even small and medium enterprises are seeing rates closer to 14 to 15 percent rather than the far steeper levels of the recent past. By the textbook, cheaper money should be flowing out of bank vaults and into new factories, shops and expansions. Instead, banks are struggling to find anyone willing to take it.

Private sector credit growth, the best single gauge of how much businesses and households are actually borrowing, fell to just 4.47 percent in June 2026, the slowest pace in 33 years, since 1993. It was not a one month blip. Growth had already slipped to 4.72 percent in March and 4.98 percent in May, meaning the sector has now spent months grinding along near multi decade lows rather than recovering. City Bank, one of the country's larger private lenders, reported credit growth of just 7 to 8 percent over its first nine months of the year, well under its own historical double digit average.

Where All That Unlent Money Is Going

The money not going out the door as loans has to go somewhere, and increasingly it is simply piling up inside the banking system itself. Excess liquidity, cash banks hold beyond what regulations require and beyond what they have found creditworthy borrowers for, hit roughly Tk 4.08 lakh crore by June 2026, a jump of nearly 40 percent from the same month a year earlier and well above the Tk 2.83 lakh crore recorded in June 2025. Two years ago the figure was closer to Tk 1.93 lakh crore. Deposit growth, at 10.74 percent, has comfortably kept outrunning loan growth, and banks have responded by parking more of their funds in government securities rather than extending credit to private businesses, a shift that keeps their balance sheets safe but does little to power the kind of investment driven growth the economy needs.

Md Arfan Ali, former president and chief executive of Bank Asia, frames the standoff in terms of the underlying economy rather than interest rates alone. "Unless electricity, gas, and infrastructure problems are adequately addressed, investment demand will not rebound," he said, arguing that no amount of monetary easing fixes a factory owner's decision not to expand a plant that already cannot get reliable power. Bankers describe a similar story from the corporate lending desk. A City Bank executive put it bluntly: "Even when we offer competitive rates to large corporate clients, many refuse to borrow due to persistent gas shortages," describing a situation where price is no longer the binding constraint on demand.

A Deeper Kind of Caution

Syed Mahbubur Rahman, managing director and chief executive of Mutual Trust Bank, described the mood among borrowers and lenders alike in stark terms: "You could say we are in a state of economic war," he said, adding that "when there is little investment, why would people borrow? Overall, the situation is quite bleak." His comments point to something beyond a simple interest rate story, a broader retreat in business confidence following years of political instability, energy shortages and, more recently, a banking sector reckoning with record bad debt that has made many lenders more cautious about who they extend new credit to in the first place, even with liquidity to spare.

That caution is not unfounded. Bangladesh Bank's own chief economist, Md Akhtar Hossain, has pointed to the same underlying rot dragging on the credit market from the supply side: "More than 30 percent of loans have turned non-performing," he noted, a reference to the sector wide bad loan ratio that reached 32.78 percent by June, up from 32.26 percent just three months earlier. With defaulted loans eating into capital and provisioning requirements tying up funds banks might otherwise lend, some of the industry's caution around fresh lending reflects balance sheet constraints as much as a simple lack of willing borrowers. Md Ezazul Islam, director general of the Bangladesh Institute of Bank Management, ties the credit slowdown to the same list of structural drags cited across the sector: "Economic activity remains constrained by gas and electricity shortages, the lingering aftershocks of recent political instability, and global uncertainty."

The Trend in Numbers

Set side by side, the last several months show credit growth stuck near record lows even as the volume of idle cash sitting in the banking system keeps climbing, the clearest sign yet that a rate cut alone has not been enough to get money moving again.

Period	Private sector credit growth
March 2026	4.72%
May 2026	4.98%
June 2026	4.47% (33-year low)

Period	Excess bank liquidity
June 2024 (approx.)	Tk 1.93 lakh crore
June 2025	Tk 2.83 lakh crore
June 2026	Tk 4.08 lakh crore

What the Central Bank Does From Here

Bangladesh Bank has already revised its own ambitions downward, cutting its credit growth target for the July to December stretch of the current fiscal year to 5.5 percent from an earlier projection of 8.5 percent for the first half of FY26, an acknowledgment that even a successful stimulus push is likely to land closer to 7 to 8 percent growth, still short of the 15 to 16 percent economists say the economy needs to hit a 6.5 percent GDP growth target. That leaves the central bank in an awkward position. It has the one lever it controls, the policy rate, set at its lowest point in six years, and the demand side of the equation still is not responding the way the textbook says it should. Whether the July rate cut proves to be the start of a genuine turnaround or simply the first of several more cuts still needed will likely hinge on factors well outside Bangladesh Bank's control, gas and power supply reliability chief among them, alongside whether the ongoing cleanup of bad loans and internal bank fraud cases can restore enough confidence for lenders to actually start saying yes again.

A Two Speed Deposit Market

Not every bank is competing for savers on equal footing, which helps explain some of the industry's caution. While healthier banks offer deposit rates of roughly 7 to 8 percent, distressed banks still working through their own bad loan overhangs, several of them under central bank supervision following past governance failures, have had to offer 11 to 12 percent just to hold onto deposits and avoid the kind of sudden withdrawal pressure that hit Sammilito Islami Bank earlier this month. That gap means the excess liquidity piling up in the system is not evenly distributed either, stronger banks are the ones sitting on idle cash with nowhere profitable to put it, while weaker banks are still fighting simply to retain the deposits they already have. A uniform policy rate cut, in other words, is landing on a banking sector that is anything but uniform.