NBFIs seek deferral of BB rules seeking to restore discipline
Non-bank financial institutions have demanded postponement of the application of a Bangladesh Bank guideline that is seeking to restore credit discipline in the fragile sector.
The Bangladesh Leasing and Finance Companies Association (BLFCA), an organisation of the managing directors of the NBFIs, sent a letter to the central bank governor on November 22, requesting him to push back the guidelines until December 2023.
The central bank issued the guidelines on September 14, saying that no NBFI would be allowed to inflate the income segment of the balance sheet artificially without realising cash from borrowers after rescheduling default loans.
It came after many NBFIs were found to have overstated their income segment in the past without getting back any cash from the rescheduled loans, in order to give a hefty amount of dividends to the shareholders, including their directors.
In addition, they had also not kept provision against the default loans, but many of them subsequently rescheduled the loans.
As per the new rules under the guidelines, the NBFIs have to preserve required provisions against the rescheduled loans. The NBFIs should have kept the amount previously given the merit of the non-performing loans.
Besides, NBFIs have been barred from transferring the provision of the NPLs right after the rescheduling of the loans. They can, however, shift the specific amount of provision equaling to the actual income realised from the borrowers from time to time.
A loan loss provision is an income statement expense set aside as an allowance for uncollected loans and loan payments. This provision is used to cover different kinds of loan losses such as NPLs and customer bankruptcy.
In the letter to the BB, the BLFCA said that the guidelines would have a serious impact on the recovery aspect for most of the borrowers as well as the industry.
Mominul Islam, chairman of the association, said that they had requested the central bank to suspend the guidelines as many businesses were still struggling to manage daily cash flow and were yet to recover from the damages caused by the coronavirus pandemic.
These borrowers may start to pay regular instalments if adequate support is provided to them to absorb the shock, said Islam, also the managing director of IPDC Finance, in the letter.
A central bank high official says that there is no relation between the pandemic and the guidelines.
He explained that a majority of the country's 35 NBFIs were now unable to repay depositors because of the absence of the credit discipline.
"If the central bank entertains the BLFCA demands, it will be quite difficult to establish the corporate governance in the NBFI sector," he said.
Md Serajul Islam, a spokesperson and executive director of the central bank, described the BLFCA proposals illogical as the same rules applied to banks.
"There is no scope to show an inflated income segment without realising money from clients," he said.
Bangladesh's NBFI sector has been going through a crisis owing to irregularities and scams. The woes widened after Proshanta Kumar Halder, also known as PK Halder and his accomplices, embezzled a large amount of money from at least four NBFIs.
NPLs in the NBFI sector rose 16 per cent year-on-year to Tk 10,328 crore in June, data from the central bank showed. The ratio of the bad loans accounted for 15.38 per cent of the outstanding loans.
A number of NBFIs have recently failed to repay depositors despite their funds reaching maturity.