About 60% funding of leasing companies comes from the banking sector
The spillover effect of liquidity crisis in the banking sector is being felt on the country's leasing companies, rendering them unable to respond to their clients, be it returning the money deposited with them or extending loans to the aspirants.
About 60% funding of the leasing companies comes from the banking sector, of them 40% are fixed deposits of banks and 20% funding comes from call money market.
This huge dependency on banks has landed the leasing companies into severe crisis, according to industry insiders.
"The banking sector is facing huge liquidity pressure. As a result, the non-banking financial institutions are not getting deposits from banks," said a Bangladesh Bank senior official, seeking anonymity.
Talking to Dhaka Tribune, Bangladesh Leasing and Finance Companies Association (BLFCA) Chairman Khalilur Rahman said: "About 60% funding of leasing companies comes from the banking sector but some companies are fully dependent on banks and they have been highly affected by banks' liquidity crisis."
During a visit to People’s Leasing headquarters at Motijheel in the capital, people were seen crowding the office premises to draw their fixed deposits but most of them were not getting their demands answered because of fund crisis.
The situation at most of the non-banking financial institutions is quite the same.
“We are paying the depositors' money slowly. All the money of fixed deposits cannot be repaid at once due to liquidity crisis,” said People’s Leasing Managing Director Sami Huda.
"Now banks are unable to deposit their money in the leasing companies as most of the banks are now withdrawing their deposits with the companies," he added.
Khalilur Rahman, also managing director of National Housing Finance and Investments Ltd, however, claimed: "Our company has not been affected by liquidity crisis as beside the banks, we collect funds from individual and institutional depositors."
He suggested that Bangladesh Bank should come forward to help the leasing companies face the liquidity crisis and demanded reopening of the housing fund under the refinance fund of the central bank.
They also want permission to open tax rebate bonds.
On their dependency on banks, officials of leasing companies explain that non-banking financial institutions cannot take deposits easily from the depositors like the banks. They cannot take any deposits for less than three months from depositors.
Leasing companies cannot directly pay depositors money without banking transaction. They cannot issue any checkbooks. For these reasons the depositors are not interested in keeping deposits in leasing companies.
Talking to Dhaka Tribune, Association of Bankers, Bangladesh (ABB) Chairman Syed Mahbubur Rahman said that the banking sector was facing huge liquidity crisis leading to shortage of greenbacks to meet import payments.
“On the other hand, individual deposits are being diverted to the government schemes mainly due to higher interest rates on public savings instruments than deposit rates offered by the commercial banks,” he added.
Initiative to save ailing NBFIs
According to Bangladesh Bank source, the central bank received 10-15 complaints every day on non-payment of depositors’ money from the NBFIs’ clients.
In April, the central bank was sitting with the ailing non-banking financial institutions. It is likely to formulate a bailout plan for those non-bank financial institutions which have no capacity to return clients’ money.
NBFIs proposed to borrow up to 80% of their equity through call money market to tackle an intensive liquidity crisis. But BB informed that NBFIs would be allowed to borrow up to 40% of their equity through call money market instead of existing 30%.
NBFIs would not be forced to increase their paid-up capital to Tk200crore as the overall financial sector has been going through a liquidity shortage problem, following their request.
According to a stress test report of the central bank, 12 out of 34 non-banking entities were in the red zone that denotes high vulnerability. Of the rest 22 NBFIs, 18 were in the yellow zone that indicates less risky state, and only four entities were in the green zone or safe state.
Of the NBFIs in the red zone, 95.31% outstanding loans of Bangladesh Industrial Finance Corporation had become defaulted. The amount of defaulted loans in First Finance was 37.5%, Bay Leasing, Fareast Finance, FAS Finance, International Leasing and Financial Services, People’s leasing and Financial Services, Premier Leasing, Prime Finance, Reliance Finance and Union Capital were the entities in the red zone, according to BB officials.