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Tuesday, March 24, 2009

Body on implementing BASEL-II for NBFIs

The Bangladesh Bank (BB) has decided to form a committee to implement BASEL-II accord, the latest version of capital standards set for banks worldwide, in the Non-Banking Financial Institutions (NBFIs).

BB deputy governor Murshid Kuli Khan disclosed this while inaugurating a day-long seminar on Prospects and Problems of Financial Institutions organised by the Bangladesh Leasing and Finance Companies Association (BLFCA) in a city hotel Monday.

BLFCA chairman Anis A Khan and its vice chairman Mafizuddin Sarker also spoke at the seminar.

"The BB has already sent letters regarding implementation of BASEL-II in the NBFIs to make their financial base strong as well as banks," Khan said adding that the implementation of BASEL-II in banking sector that started from January this year will be ended by 2011.

Such initiative would help prepare the local financial institutions to safely navigate through to future, he said.

Expressing concern over the non-performing loan (NPL) recovery by the NBFIs, Khan said, "Some NBFIs' performance to recover NPL is not satisfactory. Mismatch between assets and liabilities are worrisome for the institutions."

"Please be careful in disbursing credit," he said and suggested to diversify their products to make their service more competitive.

Factors like risk management guidelines, corporate governance and lack of quality manpower are the stumbling block for the further growth of the NBFIs, said the BB deputy governor.

"Merger and acquisition between each other is necessary for strong financial footing. However, nobody is yet to come forward for merger," he said.

He, however, appreciated the role played by the FIs in keeping the wheel of the country's economy moving despite several constraints.

Admitting the fact, BLFCA chairman Anis A Khan said, "BB is quite right and accurate in its assessment."

"But we need some more time to standardise this sector," he said adding that attempt also will be made to merge in order to comply the BASEL-II.

Narrating the problems faced by the NBFIs, he said, "One of the biggest problems faced by this sector is the paucity of fund and coast of fund which are hindering their growth."

He said, the competitive environment of the sector is challenging as we have to compete with banks. Banks have very low cost of fund.

Currently, twenty nine NBFIs are operating in the country. Of these, one is state-owned, 15 are private and the other thirteen are established joint venture with foreign participation.

The 29 NBFIs offer a divers array of products and services ranging from traditional leases to term loan, short term loan, factoring, home and auto loans, syndication services, merchant banking, stock brokerage services, securitization, credit card operation and a host of other offerings.

Basel II is based on three pillars: minimum capital requirement, supervisory review process and market discipline. Three-types of risks - credit risk, market risk and operational risk-have to be considered under the minimum capital requirement.

The Financial Express



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