BB steps in to ease non-bank lenders' liquidity problem

The central bank has allowed non-banking financial institutions (NBFIs) to borrow the maximum 40 per cent of their equities from the inter-bank call money market.
The current limit is 30 per cent.
The revised limit for borrowing from the call money market of the NBFIs will come into effect from September 01, 2019, according to a notification issued by the Bangladesh Bank (BB) on Monday.
"It will definitely address the NBFIs' liquidity shortage," a BB senior official told the FE.
He also said the central bank enhanced the limit for borrowing from the call money market in line with a decision, taken at a meeting with the chief executive officers (CEOs) and managing directors (MDs) of non-banks, held at the BB's headquarters in Dhaka on April 23.
At that meeting, the NBFIs also were advised to raise capital through issuing bonds, which will also help reduce the dependence on funds from banks.
The BB's latest move came against the backdrop of liquidity crunch facing the non-banking financial sector, especially after the recent liquidation of People's Leasing and Financial Services Ltd (PLFSL).
Most of the banks are still reluctant to deal with some NBFIs to avoid the possible risk, according to insiders in the banking sector.
Such NBFIs are facing the extra pressure on liquidity as banks seek to avoid these institutions, they noted.
"We're dealing with only select NBFIs," a chief executive officer (CEO) of a leading private commercial bank (PCB) told the FE without elaborating.
Talking to the FE, Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), said, "It's a good move as the banks will now have the scope for further investments in the NBFIs."
However, it will depend on the internal parameters of the banks concerned, said Mr. Rahman, managing director and CEO of Dhaka Bank Limited.
"The enhancement of such limit will help the NBFIs meet their emergency liquidity requirements," Arif Khan, MD and CEO of IDLC Finance Limited, told the FE.
He also said the Bangladesh Leasing and Finance Companies Association (BLFCA) had earlier urged the central bank governor to re-fix the borrowing limit from the call money market at 40 per cent instead of 30 per cent, thus boosting liquidity in the sector.
Currently, the central bank has set call money borrowing limit based on the equity instead of net asset earlier for the NBFIs.
The equity will be fixed on the basis of balance-sheet as on December 31, 2018 of the NBFIs concerned, the notice said.
Earlier on February 01, 2017, the BB had introduced such a provision for enhancing the equity of the NBFIs.
Currently, 34 NBFIs are operating in the country.

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