Non-Banking Financial Institutions (NBFIs) in Bangladesh experienced a historic low interest-rate spread of 0.37% in May, indicating vulnerability in the country’s financial sector. The decline in the spread was attributed to increasing non-performing loans (NPLs), rising cost of funds, and shrinking deposits. The NPLs of NBFIs tripled in less than seven years, adversely affecting profitability indicators. Additionally, NBFIs faced competition from banks, which offered higher deposit rates, leading to the withdrawal of institutional depositors. The situation prompted some NBFIs to offer rates above the ceiling, further increasing their cost of funds. Industry insiders expressed concerns about the narrowing spread and emphasized the need for immediate measures to protect the NBFIs. However, bankers expected some improvement in the coming months due to the Bangladesh Bank’s new interest rate mechanism based on a benchmark reference rate.
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