Loan recovery by non-bank financial institutions (NBFIs) dropped in the January-March period as businesses are facing the detrimental effect of a challenging business scenario amid the devaluation of the local currency and electricity shortages.
In the first three months of the current calendar year, loan recovery by NBFIs dropped 5.46 per cent to Tk 6,586 crore from the preceding quarter in 2022.
The recovery rate declined both in banks and NBFIs as businesses are finding it hard to repay loans, said Kanti Kumar Saha, vice president of the Bangladesh Leasing and Finance Companies Association (BLFCA).
Raw material prices have risen by a huge margin, which is tough to handle for most companies as they cannot fully shift the burden onto consumers.
This is especially true for firms that depend on imported raw materials.
“As a result, the businesses were impacted,” said Saha, also managing director of Alliance Finance PLC.
And even when entrepreneurs were able to shift the burden, their business suffered as sales dropped, he added.
Loan recovery from the construction sector fell the highest, 22.5 per cent, followed by the agriculture sector (20 per cent), transport (11.8 per cent), trade and commerce (8.8 per cent) and industrial sector (8.7 per cent), according to Bangladesh Bank data.
Although almost all businesses were impacted, it was massive for the small-scale ones, and since they are the main borrower of the NBFIs, the impact on the NBFIs is higher, Saha said.
Deposits of many NBFIs fell, so their advance and lending were also lower last year, which ultimately led to lower recoveries, said Md Golam Sarwar Bhuiyan, president of the BLFCA.
The NBFIs attracted deposits of Tk 43,698 crore in the first quarter of 2023, which was 0.12 per cent lower compared to the preceding quarter, as per central bank data.
The deposits also dropped in the NBFIs as increased inflationary pressure ate away people’s savings and interest rate in the NBFIs is low compared to that in banks, said Bhuiyan, who is also the managing director of the Industrial and Infrastructure Development Finance Company.
Saha echoed the same, saying that the deposit growth of the NBFIs has been in the negative since last year as the central bank had capped the interest rate at 7 per cent while banks were able to offer a higher rate adjusting with the inflation rate.
Inflation in Bangladesh jumped to 9.33 per cent in March, which was 8.78 per cent and 8.57 per cent in the previous two months respectively, according to the Bangladesh Bureau of Statistics.
As a result, the interest rate for deposits is lower in the NBFIs compared to the banking sector. So, people prefer the banks to keep their savings, Saha said.
“Now, Bangladesh Bank allows us to add 2 more percentage points with SMART (six-month moving average rate of treasury bill) for attracting deposits,” he said.
If inflation rises further, banks will be able to offer a higher interest rate again as they can offer inflation-adjusted rates. It is expected now, meaning a change in the treasury bill rate in alignment with the inflation rate, he added.
Well governed NBFIs are getting deposits as they have acquired faith of the savers in their previous years, said Sabed Bin Ahsan, head of deposits and affordable housing loans of DBH Finance PLC.
But the confidence issue was making some NBFIs suffer, he said.
Although it was common in the banking sector too, the NBFIs were unfortunately impacted more when it comes to attracting deposits, he added.
