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Struggling non-bank financial institutions (NBFIs) see a fortune change with spread between rates zooming under the latest reporting format incorporating interest on non-performing assets, officials said.
According to the central bank-modified methodology, the difference between weighted average rates on deposits and advances--better known as spread-had moved less than 0.50 per cent since May up to July, showing a grim picture of the sector.
But, suddenly, it massively widened to 3.39 per cent in August and 3.43 per cent in September 2023, Bangladesh Bank data showed.
Though the market players hail SMART regime behind the rise in spread--the core income of any financial institution--central bankers think the latest revision in the spread-calculation methodology contributed to the boost.
Seeking anonymity, a BB official said the central bank earlier had issued an instruction through which the NBFIs can show spread of the performing assets. But from August 2023 Weighted Average Lending Rate is being calculated based on last contractual interest rate for Bad/Loss loans instead of previously used zero-rated interest for such dud credits.
"It means now the NBFIs will not be allowed to show zero per cent against non-performing loans. That's why the spread of the whole sector has gone up significantly," the BB official says.
Another BB official, who also prefers not to be quoted by name, said the spread in 12 NBFIs was negative in July but the change in the reporting format lifted them out of the red zones.
"That's the major reason behind huge jump in the NBFIs' spread," the central banker said.
Managing Director and CEO of Bangladesh Finance Ltd Md Kyser Hamid said the change in the reporting format largely impacted spread of the NBFIs after having struggled much.
"If you look at the spread data of the top 10-12 NBFIs that hold around 70 per cent of the sector's overall investment and deposit portfolios, you will see their spread does not change much," he said.
Mr Hamid said the spread started increasing soon after introduction of the SMART benchmark on interest. And it will continue to rise as the central bank last month enhanced the maximum lending rate by 50 basis points to 12.93 per cent. On the other hand, the SMART rate seems to be rising in the coming months because of the upward trend in cutoff yield in the trades of 182-day treasury bills, which would enhance the spread further.
Talking to the FE, Md Golam Sarwar Bhuiyan, chairman of the NBFI's apex body Bangladesh Leasing and Finance Companies Association, said the economy is under stress due to multiple factors like higher inflation, liquidity tightness, coming national polls and forex dearth.
And these are largely impacting sustainability of the NBFIs. "We are now focusing more on our sustainability in this crucial period of time. I think this is not a conducive atmosphere for business. We hope things will change once the upcoming national election is held peacefully," he added.