Home ›› 24 May 2022 ›› Front
The new interest cap – set to come into effect this July – would make it difficult for non-bank financial institutions (NBFIs) to cover their operational costs, and cause them to incur losses.
Expressing such concerns, experts and industry insiders pointed out that the NBFIs get most of their funds from bank deposits. The interest rate on such deposits has been capped at 9 per cent, and the NBFIs will have to disburse loans at a maximum 11 per cent interest rate.
However, the Bangladesh Bank is scheduled to hold a meeting in this regard with the stakeholders of the sector.
The Bangladesh Leasing and Finance Companies Association (BLFCA) sent a written request to the central bank, urging the regulator to refix the interest rates in accordance with inflation.
So, the spread – which is the difference between deposit and loan interest rates – will only be 2 per cent, which is not nearly enough to cover the NBFIs’ running costs, insiders told The Business Post.
Addressing the issue, former adviser of the caretaker government AB Mirza Azizul Islam said, “As the maximum interest rate on deposits from customers has been set at 7 per cent and on loans at 11 per cent, the NBFIs will have a spread of 4 per cent.
“But if the NBFIs collect deposits from banks, their spread will drop to 2 per cent. This will make it difficult for these organisations to cover their operational costs.”
Aziz also expressed concerns that if the listed NBFIs fail to make adequate profit because of the recent fixing of interest rates, share prices of those firms could take a hit.
“The country’s stock market index is currently showing a downward trend. Implementation of the new interest rates could cause share prices of listed NBFIs to tumble further,” he added.
Among the 34 NBFIs in Bangladesh, 23 are listed in the capital market, and four such firms have suffered severely due to graft committed by PK Halder and his cohorts.
Former governor of Bangladesh Bank Dr Saleh Uddin Ahmed said, “The financial institutions are facing a crisis of confidence. Amid such a situation, it is hard for them to maintain profitability while covering running costs and tackling the ongoing inflation.
“The fixing of new interest rates is not a right move. Instead of focusing on the NBFI deposit and loan interest rates, the authorities concerned should prioritise improving the image and management of these organisations, boost customer confidence, and bring out new products.”
In a circular on April 14 this year, the central bank instructed all NBFIs, to set the maximum interest rate on deposits at 7 per cent and on loans at 11 per cent. The new rates will be effective from July 1, and will be imposed on all new and previous loans.
Speaking to The Business Post, BLFCA Chairman Mominul Islam said, “During the high-level meeting with the central bank governor we will discuss about the interest rate in details.”
“Instead of setting the interest rate at 7 per cent and 11 per cent, those should be set on the basis of quarterly inflation rates.”
Mominul, who is also the managing director IPDC Finance, continued, “A serious effort should be made to properly implement latest circulars issued by the Bangladesh Bank. Besides, the six organisations – which are in a bad situation due to graft – must be restructured.
“These steps will help bring back customer confidence quickly.”
Abu Ahmed, honorary professor of Dhaka University’s Department of Economics and also a stock market analyst, said, “At a period when the interest rates are rising across the globe, Bangladesh should not have fixed it.
“I do not understand why the central bank took such a decision instead of addressing the key issues faced by these financial institutions.”
Industry insiders too believe that the regulators should focus more on tackling the crisis of confidence currently prevalent in the leasing sector, which arose from PK Halder’s massive corruption and graft. At the end of December last year, total deposits of the NBFIs stood at Tk 42,500 crore, and loan disbursement reached Tk 67,162 crore. During the same period, the NBFIs had Tk 13,016 crore in defaulted loans.
