NBFIs losing credibility

Clients of non-banking financial institutions (NBFIs) are losing confidence in NBFIs due to non-return of money of depositors on time and irregularities of the institutions.

Due to lack of confidence, customers are now withdrawing their deposited money from NBFIs and the deposit of the institutions is declining gradually.

Bangladesh Bank’s data shows that the deposits of NBFIs decreased by Tk516.68 crore to Tk42086.40 crore during the period of April-June 2022 as compared to April-June 2021.

However, the amount of loans distributed by the NBFIs has increased by Tk2053.03 crore to Tk 69080.47 during the same period.

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.

The BB data also showed that the share of private sector deposit decreased to Tk39, 135 crore during the period of April-June 2022. It was Tk39, 718.87 crore during the same period last year.

NBFIs disbursed the highest amount of loans to the industrial sector as the amount of loans increased to Tk2517 crore in April-June 2022 while it was Tk2073 crore during the same period last year.

Industry insiders said the NBFIs’ loan interest rate is higher and that is why most of the customers are going to banks instead.

IPDC Finance Ltd’s Managing Director and CEO Mominul Islam told The Business Post big institutions are not facing any major issues regarding deposits but the small ones are getting lukewarm response from their customers because of the incidents involving People’s Leasing and Financial Services Ltd.

“Banks are also showing disinterest in giving funds to smaller NBFIs, making their situation more difficult. We are making an effort with Bangladesh Bank to further boost this sector.”

Mominul, also the Chairman of the Bangladesh Leasing and Finance Companies Association, said if a company possesses a good reputation and if their amount of defaulted loans is low it will not be difficult for them to attract deposits.

Amid the Covid-19 pandemic, Bangladesh Bank gave a number of policy assistance to the country’s NBFIs, extending more liquidity assistance to them. It also repeatedly instructed the banks not to withdraw deposits from such institutions.

A central bank official, on condition of anonymity, said, “Because of some weak institutions, there has been a negative impact on the sector as a whole. The investment and business of the NBFIs have decreased due to irregularities of several companies including People’s Leasing Ltd.

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 authorities concerned should priorities improving the image and management of these organizations, boost customer confidence and bring out new products, he said.

Addressing the issue, former adviser to a caretaker government AB Mirza Azizul Islam said a few financial institutions have completely collapsed as many other institutions have suffered greatly.

As the maximum interest rate on deposits from customers has been set at 7 percent and on loans at 11 percent, the NBFIs will have a spread of 4 percent, he added

But if the NBFIs collect deposits from banks, their spread will drop to 2 percent. This will make it difficult for these organizations to cover their operational costs.

Meanwhile, NBFIs bad loans increased by Tk2, 920 crore in the first half of this year.

The total bad loans of 34 NBFIs stood at Tk15, 936.42 crore as of June of 2022, accounting for 22.99 percent of the sector’s total outstanding loans of Tk69, 331.72 crore, according to the Bangladesh Bank’s latest data.