Umpteen clients of NBFIs unsafe

Depositors may not get paid in case of latter's bankruptcy as all 34 BD non-banks operate sans deposit insurance

FE Team | Published: January 20, 2018 22:34:28

Jasim Uddin Haroon
Bangladesh's 34 non-bank financial institutions all operate outside deposit-insurance system, thus denying myriad of savers protections in case of the NBFIs going bankrupt or losing the capacity to pay.
Sources said the central bank of Bangladesh had made a move to mend the lacuna few years back, but any outcome still remains a far cry. Many top central bankers feel such protection could boost depositors' confidence in the leasing firms.
The Bangladesh Bank had introduced similar protection for commercial banks under a law enacted in 2000 for up to Tk 100,000. Bank depositors can get back their money if banks fail to pay.
The banks under three grades deposit a certain percentages of the deposits in the form of premium with the central bank annually.
People familiar with the matter at the central bank told the FE in the past week that they had taken a move to introduce the same safeguard as banks in the interest of NBFI depositors, but to no avail so far.
"We've sent a fresh letter to the Ministry of Finance in this connection," said one BB official.
The banker, however, feels that this is very much important as they (non-banks) also collect deposits from the public and others.
And a number of top executives at the NBFIs told the FE that they also want such insurance system.
They are of the view that this will help boost the depositors' confidence in the NBFIs.
Asad Khan, a former CEO at Prime Finance, told the FE that they need such insurance and they all agree on the matter positively.
"We never opposed it and would never oppose it," said Mr Khan, who was also the chief of Bangladesh Leasing and Finance Companies Association (BLFCA), a group of 29 NBFIs. There are 34 NBFIs operating in the country in total.
On the other hand, another former BLFCA chief, Mofiz Uddin Sarker, who also dealt with the matter, said they also were too eager to introduce the system of depositor protections.
"We had meetings at different levels, but it is yet to come into life."
He said they proposed to have three-layer insurance as the deposit they collect is somewhat different from that of the commercial banks.
The NBFIs collect time deposits, beginning from three months, and the amounts deposited are also larger in volumes than the commercial banks'.
"We had proposed up to Tk 100,000 to be free from insurance coverage, from above Tk 100,000 to Tk 500,000 should be optional and above Tk 500,000 mandatory," Mr Sarker, who also retired recently from an NBFI, told the FE.
People in the central bank said public confidence in financial sectors is very crucial. Deposit in insurance systems is the key element in maintaining confidence and promoting financial stability through increasing savings with the banking sectors.
They also said financial institutions face many risks, since working with borrowed money and having liabilities to a number of depositors, and the bankruptcy of a single one could initiate a cycle of instability hitting entire financial system in a knock-on effect.
Deposit insurance was first introduced way back in August 1984 as a scheme in terms of 'The Bank Deposit Insurance Ordinance 1984''. In July 2000 the Ordinance was repealed by an act entitled 'Bank Amanat Bima Ain 2000 (The Bank Deposit Insurance Act 2000)'.
For the overall administration and management of the deposit-insurance system, a Trustee Board is needed, and the Board of Directors of the Bangladesh Bank is the Trustee Board.
Currently, banks' premium rates are of three kinds: 0.08 per cent, 0.09 per cent and 0.10 per cent, depending on the banks' ratings.
jasimharoon@yahoo.com