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Curbs on NBFIs' foreign bank borrowing may go

Rejaul Karim Byron
Restrictions on non-bank financial institutions' (NBFI) borrowing from foreign banks are likely to go but the institutions are to go by a guideline from the central bank.
"We will prepare a guideline on such foreign bank borrowing, which the NBFIs should follow," Bangladesh Bank Governor Dr Salehuddin Ahmed told reporters after a parley with the NBFIs in Dhaka yesterday.
Under the Financial Institution Act, 1993 direct foreign transaction is prohibited for the NBFIs.
The country's 29 NBFIs have long been demanding that the central bank allow foreign bank borrowing for them to meet their fund constraints. They said average cost of fund of an NBFI is much higher compared to a banking company, so an alternative is an option for them.
"If we can take foreign loans at a low interest, consumers' borrowing will also cost less,” said Anis A Khan, chairman of Bangladesh Leasing and Finance Companies Association, disclosing that the BB chief in principle agreed to their demand.
The meeting deliberated among others on rapid rise in bad debts, depositing government fund with NBFIs, issues relating to dealings of the BB's Credit Information Bureau, offloading of NBFI shares, bond market development, implementation of BASEL-II and NBFI services to clients.
The governor, however, linked the permission for NBFIs' foreign
transaction to the amount of investment these institutions want to make and terms and conditions of their lending, among others.
"We will have to examine different issues before allowing NBFIs' foreign borrowing." Salehuddin said, adding that the NBFIs have been asked to form a committee to execute the BASEL-II principles.
The central bank's CIB is in the process of introducing its online operation very soon, yesterday's meeting, called in to express the BB concerns over the bad debt that stand at over 10 percent of the total lending by non-bank financial institutions, was also told.
The BB made a directive to the NBFIs to bring such debts down at the earliest possible time.
The BB officials said whereas NBFIs collect money from banks at a higher rate to lend to a limited and selected group on an extensive scrutiny, an amount of over 10 percent bad loans for them is a matter of serious concern.
The central stressed persistent monitoring of the NBFIs' lending process.
During the meeting it was pointed out that 20 out of 29 NBFIs have raised their capital through issuing initial public offerings (IPO).
The NBFIs have been asked to issue such IPO as quick as possible, as many institutions are yet to comply with the repeated directives from the Bangladesh Bank and Securities and Exchange Commission to do so.
There is a provision for depositing 25 per cent of the state institu-
tions' money with private commercial banks (PCBs).
The NBFIs have proposed to the government for taking steps for depositing 15 percent money with the NBFIs instead of PCBs.
The meeting pointed to the fact that Bangladesh's bond market is in its earlier stage. A very few players with a limited number of instruments are operating in this market So far 3 NBFIs have issued asset-backed Securities Bond amounting to Tk 170.50 crore. At the same time 5 NBFIs issued 'zero coupons' amounting to Tk 850 crore.
The meeting agreed that new financial instruments should be explored to lower the NBFIs' costs of funding. In this context, developing bond market is crucial, the meeting was told. The NBFIs should enhance their expertise in this arena and negotiate with concerned authority to provide more incentives for bonds, it observed.
The meeting also discussed complaints from clients. The clients usually complain that some NBFIs are hiding their service charges and other terms and conditions at the time of agreement and claimed more later on.
The Bangladesh Bank said transparency should be ensured not only at the time of agreement between NBFIs and their clients but also over the process. Otherwise lack of confidence among clients would affect the industry badly as a whole. It also suggests all NBFIs should be very specific and transparent with their terms and conditions in such a process.