Home ›› 20 Dec 2022 ›› Front
Deposits in non-bank financial institutions (NBFIs) continue to fall due to a multitude of factors, with key reasons being low interest rate against deposit products and irregularities in some financial institutions.
At the end of September of this year, total deposits in NBFIs stood at Tk 41,585 crore, down from Tk 42,790 crore when compared year-on-year, show latest data from the Bangladesh Bank.
Deposits in the NBFIs sector decreased by Tk 501 crore in the last three months, from Tk 42,086 crore recorded at the end of June this year. Depositors are losing their trust in NBFIs due to severe irregularities in this sector, say industry insiders.
They added that the interest rates against deposit products currently offered by NBFIs are low compared to some banks, because of the interest rate caps.
In April this year, the Bangladesh Bank had set interest rate on deposits at 7 per cent and loans at 11 per cent for the NBFI sector, which came into effect from July 1 this year. Previously, some NBFIs offered a maximum of 15 per cent interest against their deposit products.
Speaking to The Business Post, IPDC Finance Managing Director Mominul Islam said, “The NBFI sector is now facing liquidity shortages as they are not getting deposits at the existing 7 per cent interest rate.
“When a country’s inflation rate exceeds its interest rate, the depositors lose interest in parking money.”
On July 25, Bangladesh Leasing and Finance Companies Association (BLFCA), a forum of top executives of NBFIs, wrote to the central bank about this issue, citing that they were going through difficulties to lure depositors at the 7 per cent interest rate capped by the regulator.
A senior official at the central bank, on condition of anonymity, said, “The NBFIs are now facing an image crisis due to severe irregularities in this sector. Bad loans in this sector have increased in recent times due to scams.”
Defaulted loan in the NBFI sector was Tk 14,232 crore in the first quarter of 2022, which spiked by Tk 1,702 crore at the end of June, reveals the central bank’s Quarterly Financial Stability Assessment Report.
The report further mentions that ten NBFIs currently hold about 80 per cent of bad loans in the sector.
A Bangladesh Bank inspection team recently found severe irregularities and scams in 10 NBFIs, including the People’s Leasing, International Leasing, Premier Leasing, Uttara Finance, and First Finance.
In June 2019, the finance ministry ordered the central bank to close People’s Leasing and Financial Services because the NBFI had failed to reimburse depositors’ money despite the funds’ maturity.
The decision exacerbated the sector’s problems, insiders say, adding that instead of liquidating the NBFI, the government chose to restructure it.
“The ailing NBFIs are the pocket institutions of big industry owners. A few more rules and regulations must be introduced in this sector to tackle the ongoing crisis, and establish good governance.”
