Bangladesh Bank eases commercial paper issuance by NBFIs

The Bangladesh Bank has eased its regulations on commercial paper issuance by the non-bank financial institutions, allowing NBFIs having up to 10 per cent nonperforming loans to pool money to meet up short-term fund requirement by issuing CP.

The BB on Thursday issued the revised version of the guidelines, which was first formulated in May 2016 to allow the NBFIs with 5 per cent NPLs to issue commercial papers.

It stated that commercial paper, an unsecured promissory note, has a maturity period between 30 days and one year.

BB officials said that the new guidelines would allow the liquidity crunch-hit NBFIs to get some respite.

The central bank also raised the investment limit for the financial institutions to invest in the commercial papers.

Under the newly-set limit, the NBFIs have been allowed to invest up to 20 per cent of their capital in any CP.

Earlier, the limit was set at 10 per cent of the financial institutions’ capital.

To hedge the risk factor, the central bank set the NBFIs’ profitability as a precondition for issuing CP.

As per the fresh guidelines, net profit after tax in the preceding three consecutive years was fixed as a prerequisite for issuing CPs by the NBFIs.

In the previous guidelines, there was no profitability requirement for the NBFIs to raise fund through such paper.

On the other hand, the NBFIs have been allowed to issue CP worth up to 30 per cent of their capital.

The NBFIs in the red zone under the BB’s assessment would not be allowed to issue any CP.