NBFIs welcome CoFI introduced by BB

Representatives of the Non-Bank Financial Institutions (NBFIs) have welcomed the Cost of Fund Index (CoFI) introduced by the central bank which will track movement of 'cost data' in the industry and ensure accountability and transparency of the NBFIs. A roundtable discussion was organized in this connection by the Bangladesh Institute of Bank Management (BIBM) in the city Thursday at its auditorium.

Bangladesh Bank deputy governor SK Sur Chowdhury was present as chief guest at the programme with BIBM director general Toufic Ahmad Chowdhury in the chair. BIBM associate professor Nehal Ahmed, Bangladesh Bank (BB) joint director Abdul Wahab and BB deputy director Ashfaqur Rahman presented the concept paper on 'Cost of Fund Index for NBFIs'.

General manager of Department of Financial Institutions and Markets of BB Md Shah Alam replied to questions by the participants at the discussion programme.

Earlier in 2013, BB issued a guideline on the base rate system for the NBFIs to ensure transparency in the product pricing and help implement the risk management culture across the industry. Regionally India, Bhutan and Nepal have introduced base rate system for both BFIs and NBFIs but CoFI is not there. In setting the interest rate on a new loan, NBFIs will add a margin to the industry CoFI as per their evaluation of risk associated with the particular borrower, the paper added. CoFI is available on the BB website and updated on monthly basis. The salient features of the CoFI are-the weighted average cost of all interest bearing liabilities of the NBFIs will be addressed in the index, low-cost specific purpose funding facilities will be addressed differently so that they cannot distort the cost of funds for general business, a monthly index will be published using the daily average of every month's data which will later be accompanied by a smoothen moving average index, all variable lending interest rates will use CoFI as a reference rate and thus firm specific cost movements will not become a burden to the individual borrower.

In his speech SK Sur Chowdhruy said several opportunities are opening up both domestically and internationally as the financial sector has been integrated more with global market. Lending environment in which financial institutions (FIs) operate has become extremely competitive. He said that under Basel II and III requirements, proper assessment of credit rate has become important to maintain profitability and capital adequacy. Base rate system is well practised in the developed world and now Bangladesh wants to introduce it for both the BFIs and NBFIs. Mr Chowdhury said that BB has been paying attention to three components for supervision of the FIs-risk based supervision, good governance and coorelated supervision. Toufic Ahmad Chowdhury said CoFI will not only help the FIs to fix their base and lending rates, but also help ensure their transparency. Speakers said the leasing companies do not get any government fund which ultimately makes the cost of fund higher as they have to borrow fund from the BFIs.