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Lease financing caught up in a cobweb of problems
S M Jahangir
4/29/2004
The leasing sector has established itself as a separate business entity in the country's non-banking financial market over the last two decades. The leasing business started its journey some 20 years back with the establishment of a single company but the number of companies has now increased to 28. But the vast majority of the leasing companies have been in operation for less than a decade.
Although the non-banking financial institutions (NBFIs) have proven their business potential with the overall credit portfolios continuing to grow considerably over the years, serious impediments are still holding back the sector's growth.
Market operators held factors such as inadequate policy supports, higher costs of operational fund and absence of level-playing field responsible for it.
Terming poor policy supports from the central bank as one of the major problems, they argued that except for the issuance of licenses and monitoring NBFI activities, it has so far played little role for the promotion of the sector.
Identifying the absence of a level-playing filed as one of the major impediments to the growth of the country's leasing business, supports of NBFIs alleged that they were not getting necessary supports. The situation with the country's commercial banks is opposite.
On such supports, operators said, to meet their immediate fund crisis, banks do get counter-finance facilities from the Bangladesh Bank at a minimum rate of interest but NBFIs do not get the same.
Besides, commercial banks also enjoy a 2.0 per cent rebate on the VAT (value added tax) payment while such provision is not applicable for the NBFIs, they claimed.
In addition to those advantages, banks can also borrow fund from the call money market at a lower rate of interest while NBFIs have to pay higher rate against their borrowings from the same market.
Mentioning higher cost of operational fund as another major impediments, NBFI operators argued that it was very difficult to run their business with such costly funds.
Generally, NBFIs borrow short-term fund from the banking system but they use the fund for long-term investment, they added.
NFBIs' have to borrow fund from the banking system at the rate of interest ranging between 12 and 13 per cent, which, according to them, is extremely high in the context of present business arena.
They, however, observed that leasing companies' limited options to mobilise fund from alternative sources are forcing them to borrow operational capital from the banking system at higher interest rate.
Currently, the NBFIs' fund dependence on the banking system and the call money market is calculated at over 55 per cent, an official source confirmed.
Such an extreme dependence was attributed to the NBFIs' limited scope to collect deposits from public, as commercial banks enjoy such opportunities.
Although the central bank has advised the commercial banks to slash their interest rate against their lending to the NBFIs, most of the commercial banks are still reluctant to cut their lending rates.
Leasing operators, however, claimed that commercial banks often treated them (NBFIs) as their business competitor, in spite of the fact that both the sectors are still complementary to each other.
NBFIs are also facing an uneven competition as their lenders - commercial banks - are also engaged in lease business, offering comparatively lower rate of interest to their clients, sources said.
Despite being the NBFIs' fund providers, banks also run leasing business, they claimed, suggesting that banks should be allowed to do the same only through opening separate leasing units.
The source also informed that the cost of funds of the commercial banks was much lower than that of NBFIs as they easily collect deposits from public at lower rates of interest.
Taking the cost of fund into consideration, the central bank has already suggested the NBFIs to mobilise fund from the secondary money market, especially through capital market, to reduce their fund dependency on banking system.
However, the readjustment of paid-up capital for NBFIs have emerged as another major problems for a good number of leasing companies, especially those are in operation with poor capital-base.
The Bangladesh Bank (BB) in last June re-fixed the minimum ceiling of paid-up capital at Tk 250 million (25 crore) for the NBFIs against the earlier ceiling of Tk 100 million with the objective of strengthening their capital base.
Under the new provision, the companies, having paid up capital below Tk 250 million, must cover up at least 50 per cent of their capital shortfall by first one year and the remaining amount within the next one year.
Against the backdrop, a good number of companies find themselves in a difficult situation to raise the afore-mentioned fund within the given timeframe as a good number of companies are running their business with the capital-base of only Tk 30 to Tk 50 million.
It is hardly possible for such companies to mobilise capital either through fresh sponsorships or floatation of initial public offering (IPO).
Although most of such companies are keen to float IPO, but they are in great dilemma whether they would get positive response from the ongoing bearish capital market or not.
NBFI source, however, said a good number of NBFIs have no other options but to raise funds through the capital market for their survival.
Apart from the aforesaid impediments, the NBFIs' overall credit portfolio continued to grow significantly over the years, increasing by 25 per cent in 2003 calendar year over the previous year.
Latest official figures suggested that the NBFIs total credit volume reached Tk 36.50 billion in 2003 calendar year compared to around Tk 29 billion in 2002 and around Tk 25 billion in 2001.
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