Liquidity crisis grips NBFIs

Tk 100bn spl fund sought to survive crisis

Staff Correspondent

2 July, 2020 12:00 AM printer

Liquidity crisis in non-bank financial institutions (NBFI) has become more critical as their loan installment realisation flow has slowed down because of coronavirus pandemic.

 Top leaders of Bangladesh Leasing and Finance Companies Association (BLFCA), an association of chief executives of FIs has sought Tk 100 billion special fund from the central bank to overcome the crisis. 

BLFCA made the demand on Tuesday at the meeting with the central bank governor Fazle Kabir, Bangladesh Bank sources informed. 

Mominul Islam, chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA) and MD of IPDC Finance said "Our installments are not coming back as we have given relief to the borrowers due to the pandemic."

  “The customers are withdrawing their deposited money. Banks are also not giving us loans at 9 percent interest. In this situation, we have sought a special fund of Tk 100 billion from the central bank,” he also said. 

"We have asked for this fund for 10 years at the interest rate other banks are enjoying," he added.

 No NBFIs’ clients can be declared defaulter even if he does not pay the loan by next October. As a result, the collection will be slow. Again, the withdrawal of deposits by customers will put a strain on financial institutions. That is why a special fund of Tk 100 billion has been sought at the banks rate, he said.

With this fund, it will be easier to disburse loans and continue normal loan activities under the government declared incentive packages, according to NBFI leaders. 

 He said many financial institutions were offering deposits at 6 per cent interest and loans at 10 per cent interest but in the current situation, deposit volume is not increasing as per desire.

 It was also demanded that the deposits of NBFIs parked in banks not be withdrawn by next December, interest rates on bank-financed loans at NBFIs be reduced to 9 per cent and pre-financing facilities be provided instead of refinancing under the incentive package.

 Sources of NBFI said that about 60 percent funding of the leasing companies comes from the banking sector, of them 40 percent are fixed deposits while 20 percent funding comes from call money market.

This huge dependency on banks has driven the leasing companies into severe crisis, according to sector insiders.

"The banking sector is facing huge liquidity pressure. As a result, the non-banking financial institutions are not getting deposits from banks," a senior Bangladesh Bank official said.

Many banks are withdrawing their deposits. As a result, most financial institutions are suffering from liquidity crisis. That is why they are in uncertain about whether the government will be able to distribute incentive money under interest subsidies.

 Because, under the incentive announced by the government, banks and financial institutions have to distribute half from their own funds. Bangladesh Bank will refinance the remaining half at four percent interest.