Slight decline in NBFI deposits in March quarter

Non-bank financial institutions, popularly known as NBFIs, saw a TK54 crore or 0.12% decline in deposits in March quarter compared to that of the previous quarter, according to the latest central bank report.

At the end of March, the deposit amount stood at TK43,699 crore. The figure is, however, TK1,426 crore higher year-on-year. 

Sector insiders said the decline is the result of the ongoing cash withdrawal spree amid inflationary pressure and higher interest rates in banks. 

"Our inflation is very high, so people need more money to meet up their regular expenditures. That is why the cash withdrawal pressure from this sector was high during the March quarter," said Kyser Hamid, managing director and CEO of Bangladesh Finance Limited.

"Another reason was interest rates. As the banking sector has increased deposit rates, customers preferred banks to non-bank financial institutions. We, however, have been getting customers back in recent times," he told The Business Standard and hoped that they will return to positive growth in the June quarter.

Mentioning that the NBFI sector does not give loans relying only on deposits, he said, their funds also come from board directors' equities and bank borrowings. 

"We suggest our customers do not run after high deposit rates as many banks suffer high non-performing loans and capital shortfalls. We always say, if anyone wants to deposit, he/she should take a look at the institution's capital condition and non-performing loan situation," added Irteza Ahmed Khan, managing director and CEO of Strategic Finance and Investments Limited.

Despite the fall in deposits, NBFI loans increased by 1.31% to TkTK71,239 crore in the March quarter compared to that of the previous quarter, according to the central bank report. The loan disbursement of the sector climbed by TK2,329 crore in the span of one year.

Insiders said the amount of defaulted loans in the sector has also been on the rise and a portion of interest earnings getting stuck there. At the end of December last year, the amount of defaulted loans was TK16,821 crore or 23.88% of the total outstanding loans of the sector. It is TK3,804 crore higher year-on-year.

Increased interest rates from July

The Bangladesh Bank on Tuesday set the highest lending rate for NBFIs at 12.13% and the deposit rate at 9.13%, effective from the next month, as it moved away from interest rate caps.

"Besides, a 1% additional supervision charge can be added in the case of personal and auto loans. The charges can be taken once a year," reads a central bank circular issued by the Department of Financial Institutions and Markets. 

The matter was also discussed in the monetary policy for July-December 2023.

The circular said a reference rate will be determined based on the six-month moving average rate of treasury bills or SMART, and NBFIs are allowed to add a maximum of 2% to the SMART to determine deposit rates and 5% to determine lending rates.

The SMART stood at 7.13% in May, according to central bank data. Hence, the maximum NBFI deposit rate can be 9.13% and the loan rate 12.13%.

Islamic Shariah-based institutions are also asked to determine the rate of return on investment based on the SMART and the prescribed margins.