NBFIs ordered to ensure proper use of loans
The central bank yesterday ordered non-bank finance institutions (NBFIs) to guarantee the proper utilization of loans since it looks to revive corporate governance in the financial industry, which includes been tainted by scams recently.
The Bangladesh Lender asked them to handle the internal inspection frequently on the loans, according to a central bank notice.
NBFIs will have to preserve the inspection information, which can only help them bolster internal handles and compliance, the central bank said.
The BB's instructions came at the same time when some NBFIs are struggling to perform operations due to too little corporate governance.
There are 36 NBFIs in Bangladesh, and at least 10 of these can't repay depositors money regardless of the maturity of the funds mainly because scammers siphoned away a large amount of cash from the institutions recently.
NBFIs will need to screen the loans in order that the fund is committed to line with the needs stated by the borrowers in the credit applications.
The central bank instructed financial institutions to clear instalments of a project bank loan after ensuring that the borrowers have used the fund of previous instalments appropriately.
In addition, NBFIs must unearth any fund diversion immediately. Actions should be taken against the errant borrowers after detecting the fund diversion, the BB stated.
Fund diversion occurs when borrowers avoid the loans on the sectors as stated on the credit proposal.
Borrowers will not be allowed to adjust or perhaps repay instalments of a good loans by method of taking another loan.
NBFIs have already been asked to include the provision of the correct make use of loans in the internal credit regulations.
If the inner inspection teams of NBFIs get out any irregularities perpetrated by borrowers while investing the loans, NBFIs will need to inform the Department of FINANCE INSTITUTIONS and Markets of the central bank immediately.
As of September last year, default loans found in NBFIs stood in Tk 10,245 crore, up 50 per cent year-on-time. NPLs accounted for 15.5 % of the outstanding loans in the NBFI sector towards the end of the 3rd quarter of 2020.
The actual amount of toxic assets is a lot greater than the figure reported by NBFIs in September, as much of these concealed NPLs by method of using the window dressing. Besides, NBFIs as well enjoyed financing moratorium throughout this past year, a center that curbed the upward craze of NPLs for the time being.
"The instruction distributed by the central lender is a routine process for just about any NBFI," said Mominul Islam, chairman of the Bangladesh Leasing and BOAT LOAN COMPANIES Association, a platform of managing directors of NBFIs.
But, the central bank has got reminded the NBFIs of the problems once again since it has just lately unearthed a broad genre of irregularities in some institutions, he said.
The errant NBFIs have given out loans to fictitious companies, putting an adverse impact on them, he said.
Default loans will decrease if NBFIs follow the instruction appropriately, said Islam, as well the managing director of IPDC Financing.
The financial health of at least 10 NBFIs has been around dire straits because of financial scams recently.
For example, Bangladesh Commerce Bank and Janata Bank are in a hard situation to recover Tk 633 crore they deposited with 6 non-bank financial institutions.
Private lender BCB and state-run Janata retained the fund with Peoples Leasing & Financial Services, Primary Finance, FAS Finance & Expenditure, Bangladesh Industrial Finance Company, International Leasing and Financial Solutions, and Premier Leasing & Financing Ltd in the past.
Although the funds have matured, the NBFIs cannot return the amount of money to the banks.
Prashanta Kumar Halder and his associates embezzled a huge amount of cash from four NBFIs, creating a haphazard circumstances for the financial industry.
The Anti-Corruption Commission is looking at the matter.
The central bank put on the Huge Court in 2019 to liquidate Peoples' Leasing and Financial Services (PLFS) following the board of the NBFI had informed the BB that it had been unable to pay back depositors.
PLFS is now along the way of liquidation.
