NBFI deposits rise as People’s Leasing included in list

Deposits in non-bank financial institutions (NBFIs) witnessed a boom in the last quarter, after gradually declining in the previous quarters, due to mainly the inclusion of People’s Leasing and Financial Services Ltd (PLFSL) in the central bank list.

During the October to December quarter of last year, NBFI deposits stood at Tk43,752 crore, up from Tk41,585 crore in previous quarter, as per the latest data from the Bangladesh Bank.

According to central bank data, NBFI deposits have increased by Tk 2,167 crore in the last three months. Loans by NBFIs have also increased in this quarter.

A senior official of the central bank said both deposits and loans of NBFI sector have increased in the last quarter as PLFSL has been included in the sector.

The company was excluded from the central bank’s NBFI list when the government decided to liquidate PLFSL due to deterioration of its financial health in the last several years.

In June 2019, the finance ministry ordered the central bank to close PLFSL after 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 company has been included in the NBFI list following a High Court decision to revive the company. As part of its move, the High Court formed a board to reconstruct the financial institution.

However, PLFSL has yet to start activities as an NBFI. Also, the company is yet to repay the depositors money.

Industry insiders said NBFI deposits continue to fall mainly due to the skyrocketing inflation and interest rate cap on lending rate.

The general point-to-point inflation rate has increased by 0.21 percentage points to 8.78 per cent in February this year, compared to this January.

The food inflation was 8.13 per cent and non-food inflation was 9.82 per cent in February 2023, as per the latest data from the Bangladesh Bureau of Statistics (BBS).

In April of last 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 of last year.

Previously, some NBFIs offered a maximum of 15 per cent interest against their deposit products.

The NBFI sector is now facing liquidity shortages as they are not getting deposits at the 7 per cent interest rate, said Mominul Islam, former chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA).

“When a country’s inflation rate exceeds its interest rate, the depositors lose interest in parking money,” said Islam, also a Managing Director of IPDC Finance.

However, the central bank recently decided to withdraw the single digit interest rate on bank loans but is yet to take any decision for NBFI sector.

Former Bangladesh Bank governor Salehuddin Ahmed told The Business that the NBFIs are now facing an image crisis due to severe irregularities in the sector, which affected deposit growth.

A few more rules and regulations must be introduced in this sector to tackle the ongoing crisis, and establish good governance, he said.