Consumer financing by the banking sector saw a significant rise during the last year thanks to falling lending rates and rising purchasing power of the country's middle-class.
Consumer credit rose 28.22 per cent year-on-year to Tk 369.83 billion in 2016 from Tk 288.43 billion a year ago, according to the Bangladesh Bank.
The segment accounted for 5.49 per cent of the total outstanding loan in the banking sector. The total outstanding loan was Tk 6,739 billion in 2016.
The sector posted only 12 per cent increase in consumer lending from Tk 256.15 billion in 2014 to Tk 288.43 billion in 2015.
Of the total outstanding loans, the segment accounted for 4.93 per cent in 2015 and 4.95 per cent in 2014.
"The key reason for the significant jump in 2017 is certainly the declining lending rate in the banking sector," said Abdur Rahman, Head of Branches of City Bank Limited.
He thinks the middle class is expanding with their living standard going notably up. This has certainly pushed up the demand for consumer finance.
The salary hike of government employees has also contributed to the change in consumption habit, he added.
A central bank general manager said banks are finding the consumer loan more comfortable than the larger loans due to its satisfactory rate of recovery.
Though the share of classified loans in the total outstanding loans of banks in 2016 recorded rise, the same in the case of consumer loans actually shrunk.
The share of classified loans in consumer financing was 8.13 per cent in 2015 which came down to 8.03 per cent in 2016.
The weighted average interest rate on consumer financing was 9.46 per cent in July whereas the average lending rate for other loans was 9.56 per cent, according to the BB.
The industry people think the demand for consumer loans will increase further if the economic and political situation remains stable in the days coming.
According to City Bank's data, the disbursement of its total consumer loan was Tk 13.47 billion in 2016 while the amount of loan reached Tk 19.66 billion between January and August this year.
Mr Abdur Rahman said the city bank is likely to secure the first or second position among all banks in consumer financing this year.
When contacted, Head of Retail Banking of Standard Chartered Bank Bangladesh Aditya Mandloi said they see a lot of potential in the growth of consumer financing as banks can cater to a large young population through various retail offerings like personal loan, auto loan, home loan, credit cards etc.
Claiming Standard Chartered Bangladesh is the pioneer in retail consumer financing, he said the bank will continue to bring in best practices from their other franchises across the world and introduce innovative products and services to the Bangladesh market.
The consumer loans consist of housing loans, auto loans, credit cards, any purpose loan etc.
Of the total consumer lending, nearly 50 per cent or Tk 181 billion was used for any purpose loans.
In April this year, the central bank increased the personal loan limit to Tk 500,000 without any securities from Tk 300,000 earlier to support the rising consumer demand.
Banks may lend more if the loan is backed by liquid securities. But the loan cannot exceed Tk 2,000,000 under any circumstances, according to the central bank.
