Regulatory Alerts2023-02-01
Added
DFIM Circular Letter No. 02: Issuance of Bond by NBFIs for collecting long term funds
Non-banking financial institutions are directed to avoid inter-bank transactions and instead raise long-term funds through bond issuance to mitigate liquidity risk and maintain independent liquidity. This directive addresses the practice of funding long-term lease operations with short-term sources, which has caused liquidity mismatches and payment difficulties for depositors. The instruction is issued under the authority of Section 18(c) of the Financial Institutions Act, 1993.
Department of Financial Institutions and Markets Bangladesh Bank Head Office Dhaka. Ref No.: DFIM-Circular-02 DFIM Circular Letter No. 02 Managing Directors / Chief Executive Officers All Financial Institutions operating in Bangladesh.
Dear Sir,
Regarding the issuance of bonds for the collection of long-term funds.
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It has recently been observed that some financial institutions are not raising funds from long-term sources but are instead raising funds from various short-term sources, including inter-bank transactions, to operate long-term investment programs such as leasing. As a result, some financial institutions are facing difficulties in paying off debts arising from inter-bank transactions and the principal and interest of depositors due to liquidity mismatches, which is not desirable.
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In this regard, to maintain the independent liquidity of Non-Banking Financial Institutions and to reduce public market risk through effective management of existing liquidity mismatches, instructions are being issued to financial institutions to avoid inter-bank transactions and take initiatives to raise long-term funds through the issuance of bonds. This instruction is issued under the powers granted in Section 18(c) of the Financial Institutions Act, 1993.
Yours faithfully,
(Md. Amir Uddin) Director (DFIM) Phone: 9530178.
Date: 18 Magh 1429 01 February 2023