Liquidity shortage hits NBFIs

FE Team | Published: September 14, 2008 00:00:00 | Updated: February 01, 2018 00:00:00

Siddique Islam
Fund shortage, of late, has become a major problem for the country's non-banking financial institutions (NBFIs) which are finding it difficult to mobilise deposits from the market.
The liquidity shortage is now seriously affecting the business operations of the NBFIs which are mainly engaged in lease financing.
Less-than-usual rate of implementation of the annual development programmes (ADPs) and higher interest rates offered on deposits by banks have emerged as major hurdles to flow of funds to the NBFIs, market operators said.
Besides, commercial banks are charging higher interests while lending to NBFIs. The banks are now demanding interest rates between 14 per cent and 15.50 per cent instead of the previous rates ranging between 12.50 per cent and 14.00 per cent, they added. Banks say that they have no option other than raising the lending rates because of higher deposit rates.
"Fund is a big problem for the NBFIs to run their business smoothly," Chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA) Anis A Khan told the FE in an exclusive interview.
Mr. Khan, who is also Chief Executive Officer (CEO) and Managing Director of the IDLC Finance Limited, the country's largest NBFI, said that the overall deposit of his company recorded lower growth during the past few months.
Like IDLC Finance Limited, most NBFIs are still facing fund shortfall which might hamper their overall business activities, they added.
The BLFCA, the apex body of the NBFIs, is now planning to raise the issue with the central bank in the next meeting scheduled to be held after the Eid festival.
A senior official of the Bangladesh Bank (BB) while admitting the fund crisis in the NBFIs said the overall deposits with the NBFIs might have declined due to higher interest rates being offered by commercial banks on deposits in recent months.
The country's commercial banks currently offer interests from 5.25 per cent to 13.50 per cent on fixed deposit schemes, depending on duration, while the rates for saving accounts vary between 2.50 per cent and 8.00 per cent, according to the central bank statistics.
"We've already asked the NBFIs to submit their agenda for inclusion in our next meeting's schedule," the BB official added.
The BLFCA at the meeting will request the central bank governor for taking necessary measures to increase the flow of funds to the NBFIs, Mr. Khan added.
He also said the BLFCA will request the central bank to help ease conditions attached to the collection of fresh funds from individuals and institutions.
The BLFCA will propose to allow taking deposits from individuals and institutions for a minimum of six months and three months respectively instead of the same for one year and six months, Mr, Khan added.
"The NBFIs borrow funds from commercial banks, paying interest rates ranging between 14 and 15.50 per cent, for running their business," the BLFCA chairman said.
He also said the NBFIs have to pay higher rates of interest than the commercial banks while borrowing fund from money market.
Besides, the NBFIs are allowed to collect fund from the inter-bank call money market only up to 15 per cent of their total net assets.
Regarding borrowing from overseas sources, the IDLC Finance Limited chief said the government should allow the NBFIs to procure long-term foreign funds thorough international development partners to help increase the inflow of funds and diversify their sources of funds.
At least six NBFIs have already sought government approval to access loan from international long-term development lenders to diversify their credit source and, thus, lower their cost of fund.
"If the government allows, the NBFIs concerned will able to mobilise funds from foreign sources at lower interest rates that will help them to offer loans to borrowers at competitive rates," Khan noted.
Currently, 29 NBFIs are in operation in the country.