Non-bank financial institutions (NBFIs) see a ray of hope for the industry's much-needed rebound with increased deposits in the second quarter (Q2) of this financial year.
Not only did the deposits increase but the loans and advances distributed by them also saw a 2.61-percent increase in the October-December period of FY25 from the previous quarter, the latest data shows.
This positive sign in the financial services sector comes at a time when it is struggling to remain competitive on the money market due to fragile confidence mostly stemming from growing non-performing loan (NPL) buildups and cash withdrawals by institutional depositors.
According to the latest statistics released by the Bangladesh Bank (BB) on Sunday, total deposits, excluding inter-NBFIs, in the sector increased by Tk 1.868 billion or 0.37 per cent to Tk 480.252 billion during October-December 2024 compared to July-September of the year.
On the other hand, total loans and advances by NBFIs increased by around Tk 19.36 billion or 2.61 per cent to Tk 760.77 billion during Q2 of FY25 compared to the previous quarter.
A breakdown by the types of deposit accounts revealed the share of fixed deposits decreased from 96.99 per cent at the end of September 2024 to 96.92 per cent in December that year.
However, the fixed deposits increased by Tk 1.47 billion to reach Tk 465.45 billion at the end of Q2 of FY25 compared to the immediate past quarter.
The lion's share of NBFI deposits came from the private sector (92.23 per cent), while the remaining portion was received from the public sector.
Seeking anonymity, a BB official said the growth of NBFI deposits keeps increasing slowly as people's confidence in the sector starts to revive.
"It is a good sign for the industry that has been struggling to recover from growing NPLs and a trust deficit for a long time," he said, adding the rate of NPLs in the entire sector has crossed 25 per cent mainly because of nearly a dozen NBFIs.
Apart from deposits, he said the NBFIs used to borrow funds from the banks for lending, while there are a few institutions where foreign funds come. "That is why the volume of lending is much higher than that of deposits."
When contacted, Managing Director and Chief Executive Officer of Bangladesh Finance Md Kyser Hamid said people started treating NBFIs negatively mainly because of some problematic ones, but there are many such institutions that maintain sound balance sheets while delivering efficient financial services to their clients.
The top 10-12 NBFIs hold around 70 per cent of the sector's overall investment and deposit portfolios, he said. "I think people's perception of the sector is starting to improve."
Mr Hamid said the 10-12 problematic NBFIs account for around 80 per cent of the industry's entire NPL buildup. "If you erase them, the burden of classified loans is not too high."
"The good part is we have not seen any massive loan-related irregularities at NBFIs since 2021, and the struggling ones are at the healing stage," he added.
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