Propensity and Growth Pattern of Bank Credit in Bangladesh

Abstract

The basic purpose of commercial banks is financial intermediation between savers and borrowers. Banks are financial intermediaries that mobilize funds from surplus economic units and allocate those funds to deficit economic units. Bank mobilizes fund mainly through collecting deposits and allocate those funds by providing credit. Thus, providing credit is one of the primary functions of a bank. Bank credit is the principal sources of loanable fund for millions of households and the government. Therefore, it is very important to an economy. Agricultural, commercial, and industrial activities of a nation are often financed by bank credit. Without adequate financing, there can be no growth or maintenance of stable output. Thus, the bank credit influences total macroeconomic environment by affecting money supply, investment, total output, and employment. Therefore, it is very essential to know about the trend and growth of credit. Trend of credit refers to the general tendency or direction of credit. Growth of credit means the process of growing or the development of the credit. The growth in credits is an important indicator of an expanding commercial banking structure of a country. Since the bank credit is the most important earning asset on the part of a commercial bank, the trend and growth of the bank credit has the direct impact on the net income of a bank. Ultimately, it affects the profitability of the total banking system. As the banking sector is the major part of the financial system, the trend and growth pattern of bank credit also influences the total financial system.