NBFIs’ profitability rises as cost of fund drops
Two major components of profitability - return on asset (ROA) and return on equity (ROE) of non-bank financial institutions (NBFI) increased significantly in the April-June quarter of 2020 amid the coronavirus outbreak due to availability of low-cost funds.
A recent Bangladesh Bank (BB) report showed that the ROA of the NBFIs increased to 0.57 per cent at the end of June this year against 0.21 per cent in the same quarter last year.
The NBFIs' ROA was 0.14 per cent in the January-March quarter this year. In the April-March period this year, the NBFIs' ROE increased to 5.32 per cent against the 1.75-per cent ROE in the same quarter last year.
The BB statement also showed that the entities' ROE was 1.27 per cent in the January-March quarter this year. An official of the central bank said the entities had managed to lower their cost of fund after the implementation of the 9 per cent rate by banks, a major source of funds for the NBFIs, on April 1 this year.
Even though the implementation of the lending rate comes as a blessing for the NBFIs in terms of reduced cost of fund, they were not bound to pass down the benefit to their customers who borrowed funds from them.
As a result, return on asset and return on equity of the NBFIs' increased significantly even during the peak of the coronavirus outbreak in the April-June quarter when business and economic activities almost came to a halt across the country.
Even though the profitability of the NBFIs increased in the April-June quarter this year, the latest BB data showed that total lending by the entities dropped to Tk 85,994 crore at the end of June this year from Tk 86,101 crore three months ago.
On the other hand, implementation of the 6-per cent deposit rate in the banking sector also helped to lower deposit rates in the NBFI sector.
As per the BB documents, borrowing from banks and other sources constitute 22 per cent and deposits of customers constitute 51.2 per cent of deposits of the NBFIs while capital and others make up for 10.7 per cent and 16 per cent of their funds respectively.
As per the BB report, of the 33 non-bank financial institutions, excluding People's Leasing and Financial Services, the central bank placed 11 NBFs in the red zone, 18 in the yellow zone and only four in the green zone in its report.