The Bangladesh Leasing and Finance Companies Association (BLFCA) on Tuesday urged banks not to withdraw deposits from non-bank financial institutions (NBFIs) as the sector had been facing a liquidity crisis.
“We are now facing systemic risks because all banks have created pressure on us about withdrawing their deposits,” BLFCA Chairman Mominul Islam said at a virtual press conference on the day.
The BLFCA have requested the banks not to withdraw deposits from NBFIs amid the pandemic as the sector was in need of liquidity support from the central bank to tackle the risks, added Mominul, who is also managing director of IPDC Finance Ltd.
Highlighting the success of the financial institutions, he said, “NBFIs have been contributing to the socio-economic development of the country for the past few years. Currently 33 financial institutions with their 276 branches and 8,358 officers are serving 2,55,000 customers across the country.”
Mominul Islam said the sector was facing a number of key challenges. These include a dearth of long term funds, a limited distribution network and a lack of brands’ recognition, uneven competition with commercial banks and issues of governance.
At present, four to five NBFIs were suffering from governance problems, Mominul mentioned.
“We are working with the central bank to reconstruct the ailing NBFIs, as we have prepared a work plan in this regard,” he added.
IDLC Finance managing director and BLFCA executive committee member Arif Khan said the development of the bond market was essential in order to mitigate the liquidity crisis and make long-term financing available for NBFIs.
The NBFIs sector had been facing liquidity problems owing to the banks’ liquidity crisis as the NBFIs mobilized around 37% of funds from the banking sector, said Arif Khan.
In developed countries, NBFIs mobilize most of the funds from long- term bonds. As a result, they are not dependent on banks.
“But in our country, we face several challenges in developing the bond market. High interest rate in government treasury bills and bonds is one of the major obstacles,” he explained.
Islamic Finance and Investment managing director Abu Zafore Md. Saleh said the sector needed a regulatory framework. The NBFIs sector should get priority in mid-term financing, he added.
In answer to a question, Mominul said the loans recovery rate fell to 30% in May from the figure of 95% in April due to the pandemic. But in June, the recovery rate rose to 86%, he added.
“Most clients are applying for loans this month. If we do not get liquidity support in the form of long term debts, it will be difficult to finance industries for economic revival,” said the IPDC Finance managing director.
Replying to a question, the BLFCA chairman said the NBFIs sector would not take any decision on job and salary cuts. “We have reduced our extra costs like office expenses and other costs on luxury spending,” he clarified.
On July1, at a meeting with the BLFCA, the central bank decided to issue a Tk2,000 crore pre-finance scheme for NBFIs against bank guarantees from the Tk30,000 crore stimulus package.
However, the BLFCA has sought a Tk10,000 crore refinancing scheme from Bangladesh Bank (BB) to salvage the ailing financial sector.
Now, the BLFCA, a forum of managing directors of the NBFIs, will apply to the finance ministry for Tk10,000 crore in liquidity support.
In June last year, the government approved a proposal of Bangladesh Bank on liquidating the People’s Leasing and Financial Services (PLFS). The process of the liquidation of the PLFS created an image crisis in the NBFIs sector. As many as 33 NBFIs with 276 branches are conducting their operations in the country. At present the total amount of loans and advances in the NBFIs sector stands at Tk67,153 crore, as per BLFCA data.
