Weaker leasing companies can now easily get short-term fund with commercial paper

Weaker non-bank financial institutions (NBFIs) can now easily raise money to meet their short-term fund requirements by issuing commercial paper.

The Bangladesh Bank issued a revised guideline, in this connection, on Thursday. It stated that the NBFIs or leasing companies could issue commercial paper as unsecured promissory notes which would mature within one month to one year.

Under the guideline, the NBFIs suffering from a maximum 10 percent non-performing loan burden will now be allowed to issue commercial paper to collect money.

Earlier, the NBFIs with more than 5 percent non-performing loan were not allowed to issue commercial paper.

The Bangladesh Bank officials said that the new guideline would allow the liquidity crunch-hit NBFIs to get some respite. 

For the NBFIs', the central bank raised the limit of investing in commercial paper – up to 20 percent of their capital – which was 10 percent earlier.

To hedge the risk factor, the central bank also set the NBFIs' profitability as a precondition for issuing commercial paper. 

The new guideline says that the NBFIs will have to make a net profit after tax for three consecutive years to be able to issue commercial paper. In the previous guidelines, there was no such requirement.

The NBFIs in the red zone – indicating the vulnerability of the financial institutions under the Bangladesh Bank's assessment – would not be allowed to issue any commercial paper.