A Puzzling Stylized Fact about the Term Structure of Credit in the Banking Industry of Bangladesh

This short note identifies and explains a puzzling fact about the term structure of credit in the banking sector in
Bangladesh. Over the last twenty years or so Bangladesh economy has experienced significant structural shift
from agriculture to manufacturing and service sector. As the economy shifts from shorter to longer cycle of
production, the composition of term structure of loan is also expected to shift from shorter to longer term. As the
economy becomes more industrialized, the demand for longer term credit increases. But the reality is that the
shares of short and long term credit have been surprisingly stable over the last thirteen years at around 80 and 20
percent respectively. We argue that some combinations of both supply and demand side factors as well as stringent
government regulations are responsible for the stable ratio of long term to short term credit.