NBFIs given 15 months to strengthen capital base
Thursday, 5 November 2009
Nazmul Ahsan
The Bangladesh Bank (BB) asked Wednesday the leasing companies to increase their paid-up capital to Tk 500 million by December 31, 2010.
The leasing companies, which are commonly known as non-banking financial institutions (NBFIs), could issue Initial Public Offerings (IPOs) or right shares or bonus shares within the timeframe to meet the new paid-up capital requirement, said the BB directive.
Mr Md Elias Shikder, general manager, Department of Financial Institutions and Markets of the central bank, issued the directive to this effect.
According to the directive, a leasing company may also consider merging with another leasing entity to help meet the paid-up capital requirement.
The BB directive, however, has barred the leasing companies having shortfall in capital requirement from issuing cash dividend.
BB officials said although the NBFIs are exposed to fewer and less serious financial threats, they need increased capital infusion due to expansion of their lending activities and rapid growth of the country's economy.
Experts said the latest move would help the country's 29 NBFIs to strengthen their financial base, although some weaker companies might be forced to merge in case they failed to raise capital within the deadline.
The financial institutions would not face any trouble in increasing their capital base during the proposed timeframe since the stock market offers them that opportunity, a top official in the BB argued.
Currently, only three out of 17 listed NBFIs have above Tk 500 million paid up capital each.
BB officials said the paid-up capital of NBFIs should be enhanced to Tk 710 million from the existing Tk 300 million if the value of their assets was taken into consideration.
The total assets of all non-banking financial institutions was Tk 55.38 billion in 2003, when the paid-up capital for NBFIs was Tk 300 million. The asset value increased to Tk 158.04 billion as of June 30, 2009, argued the BB in support of its proposal to increase the paid up capital, according to a recent BB report on NBFIs.
'The NBFIs will not be able to withstand any future financial crisis if they fail to strengthen their capital base,' another BB official said.
Besides, the BB said, the increase of paid-up capital of NBFIs has become necessary after the enhancement of the paid up capital of the banking companies to Tk 4.0 billion each.
'It is necessary to increase the paid up capital of NBFIs like those of banks in the country to keep those out of financial risks and to meet the conditions under BASEL-II,' the BB argued further.
The country has now 29 leasing companies. However, only 17 are listed with the capital market.
The listed NBFIs and their paid-up capital are given below:
Bay Leasing & Investment Ltd Tk 200 million, First Lease International Tk 230 million, United Leasing Tk 260 million, IDLC Tk 300 million, Uttara Finance Tk 310 million, MIDAS Finance Tk 350 million, Prime Finance Tk 640 million, Premier Leasing Tk 370 million, Islamic Finance & Investment Tk 310 million, Lankabangla Finance Ltd Tk 440 million, IPDC Tk 780 million, Union Capital Tk 410 million, BD Finance and Investment Com Ltd Tk 360 million, International Leasing and Financial Services Tk 290 million, Phoenix Finance and Investments Tk 330 million, Fidelity Assets& Securities Co Tk 390 million and People's Leasing Tk 720 million.
Earlier, the Ministry of Finance (MoF) gave the BB with go-ahead signal to a central bank's proposal to raise paid-up capital of the leasing companies from the existing Tk300 million to Tk 500 million.
The Bangladesh Bank (BB) asked Wednesday the leasing companies to increase their paid-up capital to Tk 500 million by December 31, 2010.
The leasing companies, which are commonly known as non-banking financial institutions (NBFIs), could issue Initial Public Offerings (IPOs) or right shares or bonus shares within the timeframe to meet the new paid-up capital requirement, said the BB directive.
Mr Md Elias Shikder, general manager, Department of Financial Institutions and Markets of the central bank, issued the directive to this effect.
According to the directive, a leasing company may also consider merging with another leasing entity to help meet the paid-up capital requirement.
The BB directive, however, has barred the leasing companies having shortfall in capital requirement from issuing cash dividend.
BB officials said although the NBFIs are exposed to fewer and less serious financial threats, they need increased capital infusion due to expansion of their lending activities and rapid growth of the country's economy.
Experts said the latest move would help the country's 29 NBFIs to strengthen their financial base, although some weaker companies might be forced to merge in case they failed to raise capital within the deadline.
The financial institutions would not face any trouble in increasing their capital base during the proposed timeframe since the stock market offers them that opportunity, a top official in the BB argued.
Currently, only three out of 17 listed NBFIs have above Tk 500 million paid up capital each.
BB officials said the paid-up capital of NBFIs should be enhanced to Tk 710 million from the existing Tk 300 million if the value of their assets was taken into consideration.
The total assets of all non-banking financial institutions was Tk 55.38 billion in 2003, when the paid-up capital for NBFIs was Tk 300 million. The asset value increased to Tk 158.04 billion as of June 30, 2009, argued the BB in support of its proposal to increase the paid up capital, according to a recent BB report on NBFIs.
'The NBFIs will not be able to withstand any future financial crisis if they fail to strengthen their capital base,' another BB official said.
Besides, the BB said, the increase of paid-up capital of NBFIs has become necessary after the enhancement of the paid up capital of the banking companies to Tk 4.0 billion each.
'It is necessary to increase the paid up capital of NBFIs like those of banks in the country to keep those out of financial risks and to meet the conditions under BASEL-II,' the BB argued further.
The country has now 29 leasing companies. However, only 17 are listed with the capital market.
The listed NBFIs and their paid-up capital are given below:
Bay Leasing & Investment Ltd Tk 200 million, First Lease International Tk 230 million, United Leasing Tk 260 million, IDLC Tk 300 million, Uttara Finance Tk 310 million, MIDAS Finance Tk 350 million, Prime Finance Tk 640 million, Premier Leasing Tk 370 million, Islamic Finance & Investment Tk 310 million, Lankabangla Finance Ltd Tk 440 million, IPDC Tk 780 million, Union Capital Tk 410 million, BD Finance and Investment Com Ltd Tk 360 million, International Leasing and Financial Services Tk 290 million, Phoenix Finance and Investments Tk 330 million, Fidelity Assets& Securities Co Tk 390 million and People's Leasing Tk 720 million.
Earlier, the Ministry of Finance (MoF) gave the BB with go-ahead signal to a central bank's proposal to raise paid-up capital of the leasing companies from the existing Tk300 million to Tk 500 million.