Bangladesh Bank refrains from setting NBFIs’ lending rate

HM Murtuza | Published: 22:38, May 20,2020


The Bangladesh Bank has refrained from imposing a lending rate ceiling on non-bank financial institutions after more than two months of imposing such limit on the country’s banks.

On February 24 this year, the central bank issued a circular imposing the lending rate ceiling on banks after around two years of negotiation and series of discussions with the bank owners.

As per the BB circular, banks implemented 9 per cent ceiling on all sorts of lending except the credit card from April 1, 2020.

Even for the personal loans, the rate of interest has been reduced to 9 per cent from up to 13 per cent against personal loans by banks.

But the central bank has refrained from issuing any instruction to the NBFIs to lower lending rate.

For instance, LankaBangla Finance, one of the leading NBFIs in the country, still charges up to 23 per cent interest on loans.

Bonik, an unsecured personal loan for businesspersons of LankaBangla Finance, costs a customer 23 per cent interest, 14 percentage points higher than the 9-per cent lending rate in banks.

The lowest interest rate charged by the NBFI is 15 per cent, according the LankaBangla Finance’s web site information.

Another NBFI Prime Finance and Investment has been offering 10.5 per cent interest against its two-year deposit product and 9.5 per cent interest against three-month deposit product.

Like LankaBangla and Prime finance, many other NBFIs are still offering more than 10 per cent interest against deposit products and around 20 per cent interest against lending products.

A BB official told New Age that the central bank could have imposed the lending rate ceiling on the NBFIs but the entities would fail to comply with the instruction.

So, the central bank has refrained from issuing such directive to NBFIs, he said.

There were several other reasons for not imposing the interest rate ceiling on the NBFIs, the BB official said.

Banks collect deposit from customers and the NBFIs collect the same deposit from the banks to run their operations, he said, adding that scams and irregularities  in the sector were among the other reasons which made sourcing fund directly from the customers more costly.

When banks give customers 6 per cent interest against deposit, the NBFIs have to spend at least 2 per cent or more in addition to the 6 per cent to get the fund from banks, he said, adding that the potential low-cost source of fund, the bond market, was yet to be functional to provide low-cost long-term fund to the NBFIs.

IPDC managing director and chief executive officer Mominul Islam told New Age that lack of low-cost fund source was the main reason for the high lending rate in the NBFIs.

Mominul, also the chairman of Bangladesh Leasing and Finance Companies Association, said that the NBFIs were not allowed to receive any current deposit, the major source of low-cost fund of Dutch-Bangla Bank and Islami Bank.

About the high returns against the government securities, Mominul said, ‘IPDC has witnessed Tk 126 crore in fund withdrawal by one bank and one insurance company recently and the entities invested the same amount in the government securities.’

The entities have opted to invest in the most secured instruments treasury bills and bonds, he said, adding that the bank would be able to avail the securities to fulfil its cash requirement through REPO facility upon ensuring returns.

He also mentioned that the absence of functional bond market as another barrier to the NBFIs’ sourcing fund at low cost and using the amount to issue loans at lower rate of interest.

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