The struggling non-bank financial institutions (NBFIs) see a ray of hope for the industry's much-needed rebound with increased deposits in the last quarter (Q4) of the immediate-past financial year (FY23).
Not only did the deposits increase, but the loans and advances distributed by the NBFIs also saw a 1.68 per cent increase in the April-June period of FY23 from the previous quarter, according to show latest data.
This positive sign in the financial services sector comes at a time when it is struggling to remain competitive in the money market due to fragile confidence mostly stemming from growing non-performing loan (NPL) buildups and cash withdrawals by institutional depositors.
The result is evident: the cost of funds continues to grow, while the spread between deposit and advance rates hits historical lows at 0.16 per cent in July 2023.
According to the latest statistics of the Bangladesh Bank (BB) released on Wednesday, the total deposits (excluding inter-NBFIs) of the sector increased by Tk 9.843 billion or 2.25 per cent to Tk 446.830 billion during April-June 2023 compared to January-March 2023.
On the other hand, total loans and advances by NBFIs increased by around Tk 12.0 billion or 1.68 per cent to Tk 724.39 billion during Q4 of FY23, compared to the previous quarter, show BB data.
Whereas loans and advances in public NBFIs increased by Tk 3.66 billion or 3.61 per cent to Tk 105.03 billion, they increased by Tk 8.33 billion or 1.36 per cent to Tk 619.36 billion in private NBFIs during the April-June period of 2023.
A breakdown by types of deposit accounts revealed that the share of fixed deposits decreased from 97.32 per cent at the end of January-March in 2023 to 96.89 per cent at the end of April-June 2023.
The fixed deposits increased by Tk 7.64 billion to reach Tk 432.93 billion at the end of Q4 of FY23 compared to the immediate past quarter.
The lion's share of deposits in NBFIs came from the private sector (92.46 per cent), while the remaining portion was received from the public sector.
Seeking anonymity, a BB official said the growth of deposits in the January-March period was negative (-0.12 per cent) compared to the previous quarter.
"Now it (deposits) shows a 2.25 per cent increase, which is a good sign for the industry that has been struggling to recover from growing NPLs and a trust deficit," the central banker said, adding that the rate of NPLs in the entire sector has almost reached 25 per cent.
When contacted, Md Golam Sarwar Bhuiyan, chairman of the NBFI's apex body Bangladesh Leasing and Finance Companies Association, said the trust deficit was created among depositors because of the financial irregularities by some NBFIs in recent years.
The sector players have been working hard to regain depositor confidence and the recent rise in deposits indicates that the trust deficit is starting to be overcome.
"And I think things will start improving further in the coming quarters. I firmly believe that you will see positive change in the coming months," said Mr Bhuiyan, also the managing director and CEO of Industrial and Infrastructure Development Finance Company Ltd (IIDFC).
Managing Director and CEO of Bangladesh Finance Ltd Md Kyser Hamid said people start treating NBFIs negatively mainly because of some problematic ones, but there are many NBFIs 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. "I think the perception of the people about the sector is starting to improve as many depositors, who withdrew their funds, started returning to them, which is a good thing," he said.
Appreciating BB's latest interest-setting mechanism based on SMART or Six-Month Moving Average Rate of Treasury Bill, he said it will help resolve the problem regarding the deposit-to-lending gap, as it has now increased to 5.0 per cent compared to the previous 4.0 per cent.
Moreover, a 1.0 per cent annual supervision charge has been introduced for the CMSMEs, consumer finance and auto-loan products, which will now increase the overall yield.
"People will start seeing more positive changes in the data of this ongoing quarter once it is completed as far as deposits, lending and spread are concerned," he sounded optimistic.
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