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Non-banks on the mend

Sajjadur Rahman
Declining costs of funds and improved economic conditions are helping non-bank financial institutions overcome their lean patch of the past two years.
Between July last year and the same month this year, the average cost of funds for NBFIs dropped nearly 13 percent, Bangladesh Bank data shows.
It came down to a historic low of 10.56 percent in July this year, from 11.84 percent and 12.13 percent respectively in December and July last year.
Industry players said the economic activities, which were badly affected by the political unrest of last year, have improved significantly.
They said demand for money by small and medium enterprises (SMEs) and retail consumers have increased in recent months, though it is still sluggish for the corpo-rate sector.
Income from stock market operations, a core area for many NBFIs' activities, also improved substantially.
"We have done excellently in the SME and consumer loan segments in the past two quarters, but we saw de-growth in our corporate loans," said Selim RF Hussain, managing director of IDLC Finance, adding that the business from
stock market operations is also growing.
Asad Khan, managing director of Prime Finance, said they are quite optimistic about good business in the months to come, riding on an improved business condition.
"Our business has rebounded in recent months. Some of the investments, which were frozen for over a year, have started rolling again," said Khan, also the chairman of Bangladesh Leasing and Finance Companies Association.
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Over the past six months, the NBFIs' cost of funds has come down by more than 1 percentage point, riding on surplus liquidity in the market and direct deposit collections by some NBFIs, which depended solely for funds on bank borrowing 2-3 years ago.
Half-yearly data shows most of the NBFIs were able to net more profits in comparison to a year ago.
IDLC Finance, Delta Brae Housing, Prime Finance, Phoenix Finance, Bay Leasing, United Leasing, among others, have earned 10 to 30 percent more profits during the January-June period of this year than a year ago.
Industry insiders said their businesses have increased further in the July-September quarter showing a good outlook for the sector.
They declined to share the facts and figures saying these are price sensitive information, which is not yet made public. With regards to default loans, NBFIs are in good health compared to banks.
Between December 31 last year and June 30 this year, NBFIs' default loans increased only 4.69 percent in contrast to banks' 26 percent, central bank data shows. At the end of June, theirdefault loans stood atTk 1,850 crore.