Non-bank financial institutions (NBFIs) in Bangladesh faced a challenging first half of 2023 as their profits were cut in half compared to the previous year, primarily due to a historic low interest spread. Data from the Bangladesh Bank revealed that the average gap between borrowing and lending rates narrowed to 0.27% in June, down from 0.75% for the first half of 2023. This tightening margin was driven by increased competition among NBFIs to attract depositors, resulting in higher rates offered on deposits compared to loan interest rates. The situation was exacerbated by weakened financial institutions offering elevated rates to entice savers amid liquidity constraints, eroding profits.
The impact was felt across the sector, with nine NBFIs reporting negative interest spreads of up to 11.36% in June, causing a significant decline in profits. Additionally, a downturn in the stock market, coupled with provision for loans, further contributed to profit erosion. However, industry experts anticipate a potential turnaround in the second half of the year following the introduction of a new interest rate regime by the Bangladesh Bank in July. The new market-driven rates offer a potential boost to profitability, with the maximum deposit and lending rates now linked to the six-month moving average rate of treasury bills. Some NBFIs exhibited signs of improvement, with quarter-on-quarter performance indicating a potential rebound in the latter part of the year.
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