BB opposes move to run HBFC as bank

The Bangladesh Bank (BB) has opposed the move to convert the Bangladesh House Building Finance Corporation (BHBFC) into a bank.

The move will hinder the BHBFC`s attaining its goal for which it was set up, the concerned sources said.

The central bank suggested that the BHBFC should rather be issued a licence under the Financial Institutions Act, 1993 on the ground of its carrying out financial business.

The BB sent last week a letter to the Ministry of Finance (MoF) in this connection as the government sought the central bank`s opinion before taking a decision on how to run the BHBFC.

In its opinion, the central bank said presently 47 scheduled banks are operating in the country and recently licences have been issued in favour of seven more new bank companies.

Besides, the issuance of licences in favour of two more companies in the banking sector is also in the process while enlistment of the Probashi Kalyan Bank (PKB) or Expatriates` Welfare Bank as a scheduled one is under consideration.

"The number of scheduled banks will reach 57 in the near future. Now issuing banking licences for more companies will just create a tough and unhealthy competition and land the country`s banking sector in fresh troubles," the BB letter read.

"Establishing another new bank, namely Bangladesh Housing Bank, won`t be wise in view of the size of the country`s economy and the number of banks in operation," it added.

The BB said banks usually offer short-term loans as they mostly get deposits for short periods. On the other hand, house building or the housing sector financial institutions need to provide long-term loans.

"So, providing loans from banks for house building or to the housing sector for longer periods may lead to a mismatch between their assets and debts," it said.

In its letter, the BB mentioned that the draft, prepared by the BHBFC board of directors for converting it into a bank, said its activities would include loans to individuals and housing companies for house construction, renovation, purchase of flats and apartments.

But the draft did not mention anything about the activities that a full-fledged commercial bank carries out including providing different types of loans, funding export and import trade and foreign currency-related matters, concerning their clients or customers, the letter noted.

"The activities of the proposed bank, as mentioned in the draft, only match those of a non-bank financial institution," the BB said.

The central bank also suggested that the activities of the BHBFC and the Investment Corporation of Bangladesh (ICB) should come under the control of the central bank.

"These two organisations should be issued licences under the Financial Institutions Act, 1993," the BB suggested.

Since its inception, the BHBFC could disburse house building loans to only 73,000 clients. Its new loan disbursement facility now covers about 1,000-1,500 clients a year.

The state-run house building financing institution as a corporate body disbursed so far Tk 43.12 billion (4,312 crore) in loans to its clients across the country.

The BHBFC has earmarked Tk 4.0 billion for disbursement in the form of loans during the fiscal year (FY), 2012-13, with 49.25 per cent of the allocation set aside for areas outside Dhaka and Chittagong.

Of the amount, Tk 1.97 billion has been allocated for building houses at district and upazila levels and also at other important growth centres, according to a high official of the corporation.

The BHBFC`s lending rate on loans in Dhaka and Chittagong metropolitan areas is 12 per cent while it is only 10 per cent for other cities.