The current effort to bring down lending and deposit rates has started putting pressure on non-banking financial institutions (NBFIs), sector insiders said.
To comply with the directive, the non-banks have been forced to slash both lending and deposit rates, although most banks have not implemented it yet, they said.
In consequence, the money is going to banks that provide higher rates that started hurting the sector, they said.
While large NBFIs having a wide range of products or those who get refinancing facility from the central bank have managed to ride out the storm, others are finding it too difficult to operate.
To overcome the challenge, the NBFIs are now focusing more on expanding their deposit portfolio by reducing dependency on costly bank credit line.
Market players, however, suggested creating a congenial atmosphere for developing the bond market, which can help overcome the existing asset-liability mismatch in the financial sector.
President of the Bangladesh Leasing and Finance Companies Association (BLFCA) Md Khalilur Rahman said the cost of fund is going up while lending is not expanding that much.
"Overall spread keeps declining. As a result, the profit margin of many NBFIs starts going down in the third quarter of the calendar year. All of us are working hard to cut NPLs (non-performing loans) but cannot do so," he said.
The average NPL in the NBFIs is less than 10 per cent but there are some institutions where it is below 4.0 per cent. A total of 35 NBFIs are operating in the country, with total portfolio standing at Tk 850 billion (85,000 crore).
Over 60 per cent of the portfolio (Tk 480 billion) come from depositors while 45 per cent of the amount are invested in the industrial sector, followed by SMEs (small and medium-sized enterprises), housing, construction and others.
Highlighting the importance of the bond market, the association president said they talked with the Bangladesh Bank and the National Board of Revenue on several occasions for the development of such a market.
"It's yet to develop here because each regulator moves towards different directions. There is no coordination among them," he said.
Chief executive officer (CEO) and managing director of IDLC Arif Khan said the NBFIs have started lowering interest rates on both advances and deposits to comply with instructions from the Bangladesh Association of Banks (BAB).
"But the problem is that many banks have not followed the order yet. So the money is going there, which hurts the NBFIs in terms of creating uneven competition," he said.
He said many banks, who were vocal about implementing the lending and deposit rates to 9.0 and 6.0 per cent respectively, are charging and offering at much higher rates. The industry players are trying hard to adjust the situation.
Mr. Khan said the NBFIs borrow money from depositors or other financial institutions for a year before lending it to others for a minimum tenure of five years.
"We will get back the invested money in five years. Then, how can we repay in one year? So, there is an asset-liability mismatch that is hurting the banks and NBFIs," he said.
Managing director and CEO of LankaBangla Finance Khwaja Shahriar said like many other institutions, his company is focusing more on enhancing deposit portfolio to avert the costly bank credit.
He said the NBFIs are investing more in creating a dedicated team like deposit associates to keep the cost of borrowing at a much tolerable label.
"I think this is a positive step through which we can build up assets and grow," he added.
