The Bangladesh Bank (BB) is thinking to approve proposals for issuance of bonds by ailing non-bank financial institutions (NBFIs) as a long-term measure for recovery from the ongoing liquidity shortfall, highly placed sources have said.
"Issuance of bond by the NBFIs is a long-term plan to address liquidity crisis. NBFIs were advised to submit proposal. We will give approval to 'bond issuance proposals' within the shortest possible time," said a top official of the central bank wishing not to be named.
As an immediate measure, banks have been asked not to withdraw fixed deposit receipt (FDR) and other loans from NBFIs, the official adds.
The issue of liquidity shortfall faced by some 10-15 NBFIs, out of the total 34 in operation, surfaced following approval for liquidation of People's Leasing and Financial Services (PLFS) Limited with a debt burden of Tk 8.5 billion from some 15 banks and NBFIs.
As some other NBFIs have been found suffering from the same crisis, the BB has also asked NBFIs to consider merger.
A merger is an agreement that unites two existing companies into one new company. There are several types of merger and also several reasons why companies agree to complete mergers.
Mergers and acquisitions are commonly done to expand a company's reach to new segments or gain market share.
Khalilur Rahman, chairman of Bangladesh Financial Institution and Leasing Companies Association, admitted that the NBFIs were asked by the central bank governor to submit proposal of issuing bonds for fund mobilization or go for merger.
"We have been asked to do so. Even, NBFIs having sound financial health were asked to take care of weak ones for recovery from liquidity crisis," he said, adding, "We shall do everything for our well-being."
In his speech at monetary policy unveiling program, BB Governor Fazle Kabir also admitted that financial state of some five NBFIs found weak. The governor said the PLFS's liquidation would not affect the financial sector.
"PLFS and some other non-bank financial institutions (NBFIs) have been going through trouble due to liquidity shortfall. We have started liquidating PLFS and asked others to reorganize boards and prepare fresh plans to accelerate financial operation," he said.
The governor said the central bank took necessary measures from time to time to address liquidity shortfall of some weak private banks and the practice would continue in the coming days.
Conventionally, banks have been playing a vital role in financial operation of NBFIs in the country by supplying them with major portion of investable funds.
"Banks supply money to NBFIs on call (call money) and by facilitating credit and deposits. Banks' contribution to NBFIs resources is around 70 %," the official says.
Remaining 30% of funds of NBFIs come from individual and corporate deposits, he adds.
The stake of NBFIs is Tk 670 billion in total lending of banks and NBFIs.
He says NBFIs suffering from liquidity crisis are trying to improve their respective financial health on their own.
"We have sought assistance from the BB," he adds.