Non bank financial institutions(NBFIs) have recorded sharp earnings growth for the past couple of years thanks to refinancing schemes of Bangladesh Bank and low call money rate in interbank money market. But now NBFIs are finding it increasingly difficult to boost their bottom line amid growing fundraising costs and stiffer competition with banks, said Ahsanul Bari, Managing Director of Bangladesh Industrial Finance Company Limited (BIFC).
Starting next year, he observed, non banks will have to increase provisions for possible loan losses to cope with the new regulations and potential risks arising from a hike in corporate lending, which may create new shadow on shadow banking in Bangladesh.
"The growth of shadow banking has been associated with economic growth in recent years, Mr Bari observes, and strong growth in shadow banking may contribute to financial deepening, particularly in emerging market economies with relatively less developed financial systems like Bangladesh".
However, he warned careful monitoring is still warranted to detect any increases in systemic risk factors that could arise from the rapid expansion of credit relative to GDP provided by the non-bank sector.
In Bangladesh, Ahsanul Bari said intense competition among the 87 lenders to grab limited number of clients is putting pressure on the interest rates when demand for money is not rising. Of the lenders, 56 are banks and 33 are non-bank financial institutions, nine new banks and NBFIs are facing further challenges, as the costs of their funds are relatively higher than their peers.
"The market is very dull. Moreover, competition to bag clients is intensifying day by day," he said noting that some good clients have paid off their loans with the NBFIs with the money borrowed from the banks who see a limited good clients are seeking loans from them. So, price competition among the banks is being intensified to attain good borrowers", he said.
"Here NBFIs are lying in disadvantage situations with high cost of funds, limited source of deposits. Some of them are exploring new windows of funding for their survival", the CEO noted.
"We NBFIs are playing a significant role in meeting the diverse financial needs of various sectors of an economy and contribute to the economic development of the country as well as to the deepening of the country's financial system", he said.
Ahsanul Bari is the Managing Director (Current Charge) of Bangladesh Industrial Finance Company Limited (BIFC), a joint venture leasing and financing company, promoted by a group of' foreign and local sponsors. A career banker with 29 years experience both in commercial banks and NBFCs, Mr Bari has worked in diversified fields of operations with challenging assignments, firm commitments sincerity and dedications.
Incorporated as a Public Limited Company in August 1996 and licensed by Bangladesh Bank as a Non-Bank Financial Institution in February 1998, BIFC has been rendering innovative, customized, prompt and cost effective financial solutions to the socio-economic growth of the country through a group of dedicated experienced professionals. It has no boundaries regarding area of financing.
The former banker sees both banks and NBFIs are playing significant roles in influencing and mobilizing savings for investment. Their involvement in the process generally makes them competitors as they try to cater to the same needs.
But they are also complementary to each other as each can develop its own niche, and thus may venture into an area where the other may not, which ultimately strengthens the financial mobility of both, he said.
Replying to a question, the CEO observed, the financial institutions industry - including banks, asset managers and financial technology companies - is currently faced with a paradigm shift caused by a number of key mega trends. Institutions are focusing ever more on regulatory capital requirements, while digitalisation and technological advances are challenging the way traditional players interact with clients.
The complex needs of financial institutions will demand increasingly sophisticated leadership in the future, Mr. Ahsanul Bari said.
"Financial institutions will need new leaders who can identify, understand and manage new and emerging risks. New leaders will be sought by traditional banks, NBFIs, FinTech firms and regulators. Competition will become fierce as the talent pool decreases but demand increases for those who can keep pace with the changing financial landscape", he said.
In the coming days, he continued technology will diminish the geographical divide but only new leaders will bridge the cultural differences.
"There will be a renewed focus on risk management but, as regulators improve their understanding of risk and compliance, there will be a skills gap as firms try to recruit new staff, up-skill existing teams and rely on specialist risk advisors", the CEO concluded.