BB issues guideline to help them better manage risks; firms not happy
The central bank has assigned greater responsibilities to the board and senior management of non-bank financial institutions to ensure consumer protection and promote sound risk management practices.
Bangladesh Bank yesterday issued a guideline for the NBFIs, giving specific directions on how they will charge various fees, manage risks, launch products and carry out supervisory activities.
But the industry people are unhappy with the ceiling the BB has set as documentation charges for loan processing.
The regulator has set the documentation fees charged by the NBFIs from their clients at maximum 0.50 percent of the sanctioned amount or Tk 200,000, whichever is lower.
The minimum amount of such fees may be determined by the NBFIs, but should not be more than Tk 5,000, according to the guideline.
However, the documentation fees (with stamp charges) should not be charged more than once.
“It will be impossible for us to survive in the business taking this charge. This ceiling may be applicable for SME clients,” Asad Khan, managing director of Prime Finance, told The Daily Star in his reaction to the BB move.
Khan said the NBFIs’ spread (the difference between the lending and deposit rates) has never reached 3 percent, which is more than 5 percent for banks. In addition, banks take numerous fees from their clients.
He also said they have to compete with banks for the same clients. “We’ll have no option other than raising our lending rates if we want to follow the guideline,” said Khan, also the president of Bangladesh Leasing and Finance Company’s Association.
The guideline said the NBFIs have been given increased flexibility, and greater responsibilities have been assigned to the board and senior management to ensure that products and services risks are well managed, and the needs and rights of consumers are appropriately addressed.
“These responsibilities will continue to be rigorously reinforced by the NBFIs,” it said.
Loan approval system has also been strengthened to minimise risks.
“The sanction authority for loans should be at least three-level committees — management, executive committee and the board of directors. There must be a written policy statement regarding the approval authority, and the NBFIs will have to follow it strictly,” the guideline said.
The BB also said credit appraisal has to be made through client visit, discussion and assessment of needs. Even after disbursement of credit, the NBFIs will have to monitor the borrowers periodically.
The financial institutions will have to take approval from the central bank before launching any product and service. They should not offer products or services that have been prohibited in other countries and could potentially give rise to public concerns.
“All new products/services and material variations of the existing products must be authorised by senior management and/or the board,” the guideline said.
The policies and procedures for products should be designed to identify measures, and monitor and control product risks in each stage of product development, authorisation, pricing, marketing, sale, distribution, portfolio management and accounting.
The central bank also prepared a guideline for the NBFIs on the penal charge in case of delay in repayment.
The penalty should be lowest for the first time and it may be charged at increasing rate for the next missing schedules. Whatever the case may be, the penal amount should be limited at the rate of 1-5 percent (per annum) over the actual rate on the overdue amount only for the delayed period, the guideline said.
Source: The Daily Star
