BB brings some relief to NBFIs’ cash crunch

The central bank yesterday raised the borrowing ceiling for non-bank financial institutions (NBFIs) from the inter-bank call money market as it looks to ease the liquidity crisis in the sector.

From now on, NBFIs can borrow up to 40 percent of their equites instead of 30 percent from the call money market, according to a Bangladesh Bank letter dispatched to managing directors of the 34 NBFIs operating in Bangladesh.

This comes after the BB earlier on January 29 made the NBFIs’ call money borrowing limit based on equity instead of net asset.

The equity will be ascertained on the basis of the balance sheet on the last working day of each calendar year of the NBFI concerned.

“The majority of them have been in an acute liquidity crisis,” said a BB official.

Despite maturity of the funds some of the NBFIs have failed to pay back their depositors due to cash shortage.

The latest central bank initiative will give a little breathing room to the non-banks, the BB official added.

“We are expressing our heartiest gratitude to the central bank as it will help ease the liquidity pressure,” said Md Khalilur Rahman, chairman of Bangladesh Leasing and Finance Companies Association (BLFCA).

But in the long run, the move will not be of much benefit as NBFIs provide long-term loans ranging from 10 to 20 years in general.

There has been a cash mismatch in the NBFI sector as they are allowed to take deposit for a maximum period of two years but have to give out loans for a longer time horizon, Rahman said.

“Against the backdrop, the NBFIs have been requesting the authority concerned to make a vibrant bond market for the sake of a well-balanced financial sector.”

No individual shows any interest in investing their money in bonds given the high tax imposed by the National Board of Revenue, he said.

An investor has to pay 30 percent tax on the income derived from bond.

There is a ray of hope that the Bangladesh Securities Exchange Commission has recently requested the NBR to withdraw the tax, Rahman said.

The central bank has recently taken a decision to liquidate People’s Leasing and Financial Services (PLFS), one of the NBFIs, due to its liquidity crisis and deterioration of financial health over the last several years.