Non-banks widen share in private sector credit

Non-bank financial institutions (NBFIs) are increasingly coming forward to finance private sector investments that are still dominated by the banking sector, according to a Bangladesh Bank (BB) report.

NBFI's share in private sector credit reached over 5 percent at the end of Q1 of the current fiscal year from less than 4 percent four years ago, according to the BB quarterly report for July-September.

Aggregate private sector credit stood at Tk 2,478 billion at the end of September, of which NBFI share was only Tk 125 billion.

Private sector credit disbursement by NBFIs increased by over 21 percent in the July-September period of fiscal 2009-10 compared to the same period a year ago, despite a sharp decline in demand. While bank credit growth was slightly over two percent in Q1 of 2009-10 than that of Q1 last year.

“A part of banking sector credit is absorbed by non-bank institutions,” observed the latest BB quarterly report released this week.

Although NBFI's contribution to private sector credit still remains insignificant in comparison to the banks, it is rising persistently.

NBFIs disbursed nearly Tk 5.5 billion to the private sector in the July-September quarter, which was less than Tk 3 billion in the previous quarter.

Sector people said in recent years most NBFIs have diversified their products and services to many other areas, such as small loans, housing loans, start-up working capital and domestic factoring of accounts receivable, to net more businesses.

Some of these non-bank institutions have already introduced new financial instruments like bonds, securitisation, syndication services, merchant banking and stock brokerage.

Term lending by these financial institutions are also rising -- reaching Tk 7.12 billion at the end of June from Tk 5.25 billion in March.

Mafizuddin Sarker, managing director of LankaBangla Finance, also said NBFI participation in private sector financing has increased.

“Now we fund a lot of industries for their balancing, modernisation, rehabilitation and extension (BMRE),” said Sarker, also the president of the Bangladesh Leasing and Finance Companies Association.

NBFIs are also lending more towards working capital, to bridge fund inflow and outflow in business cycles, he added.

A total of 29 NBFIs are operating in Bangladesh. Their total paid-up capital is less than Tk 20 billion. Banks are their main source of funds.

The total assets figure of the leasing industry has been rising at an average rate of nearly 25 percent a year for the last five years, according to the industry people.