Q31. What are the sources & uses of funds of depository financial institution?
Q32. What are the sources & uses of funds of a non-bank?
Q33. What do you mean by Loan Securitization? Explain its impact on banks
Q34. Importance of Loan Securitization
Q35. What is minimum capital and liquidity requirement for a non-bank financial institution?
Q31. What are the sources & uses of funds of depository financial institution?
Deposits and others funding sources, depository institutions both make direct loans to various entities and invest in securities. Income is derived from 2 sources i) income generated from the loans ii) fee income
Q32. What are the sources & uses of funds of a non-bank?
Sources of funds of NBFIs:
1. Capital, reserves and profit
2. Currency
3. Demand deposits
4. Other deposits
a. Banking and financial institutions
b. Public sector
c. Private sector
d. Foreign
5. Borrowings
6. Funds from other financial institutions
a. Domestic
b. Foreign
7. Insurance, provident and pension funds
8. Other liabilities
Uses of funds of NBFIs:
1. Currency
2. Deposits with other financial institutions
a. Domestic
b. Foreign
3. Loans and advances
a. Banking and financial institutions
b. Public sector
c. Private sector
d. Foreign
4. Securities
a. Treasury bills
b. Commercial bills
c. Malaysian Government Securities (MGS)
d. Corporate
o Private Debt Securities (PDS)
o Equities
e. Foreign
f. Others
5. Gold and forex reserves
6. Other assets
Q33. What do you mean by Loan Securitization? Explain its impact on banks
Securitization is the practice of creating and selling interests in the returns from a large pool of illiquid assets (assets that cannot easily be transferred). Securitizing assets with low liquidity, such as loans, allows the owner to sell the assets more easily.
The impacts of securitization are as follows:
1. Creates of markets in financial claims by creating tradeable securities
2. Spread of holding of financial assets as the security is designed in minimum size marketable lots as necessary
3. Promotion of savings- securitization makes it possible for the simple investors to invest in direct financial claims at attractive rates
4. Reduces costs- The intermediation costs, since the specialized-intermediary costs are service-related, and comparatively lower
5. Risk diversification- Securitization spreads diversified risk to a wide base of investors, with the result that the risk inherent in financial transactions is diffused
6. Focuses on use of resources, and not their ownership as a custodian for the several investors who thereafter acquire such claim
Q34. Importance of Loan Securitization
The issuers use securitization to finance their business activities. The financial assets that support payments on asset- backed securities include residential and commercial mortgage loans, as well as a wide variety of non mortgage assets. Securitized assets may be applied to any asset that has a reasonably ascertainable value, or that generates a reasonably predictable future stream of revenue.
Securitization leads to structured finance, as the resulting security is not a generic risk in entity that securitizes its assets, but in specific assets or cash flows of such entity. The idea of securitization is to create a capital market product that is, it results into creation of a security which is a marketable product.
Therefore, there is large scope for development in this area. Capital markets are today a place where we can trade, claims over entities, claims over assets, risks, and rewards. Let us consider certain types of securitization.
Q35. What is minimum capital and liquidity requirement for a non-bank financial institution?
Minimum capital requirement for NBFIs:
As per department of financial institutions and markets of Bangladesh bank circulate that the NBFIs to raise the paid-up capital by June 30, 2012 from Tk.50 crore to Tk. 100 crore and they would not be allowed to offer cash dividends until they fulfilled the newly-set paid-up capital requirement as a part of implementation of BASEL II. The foreign financial institutions operating in Bangladesh will also have to fulfill the same paid-up capital requirement.
[For Banks, as a part of implementation of Basel-II accord, banks are required to maintain minimum capital to risk-weighted assets ratio at 10% of which core capital will not be less than 5% effective from December 31, 2007. However, minimum capital requirements as required under Article 13 of Banking Companies Act, 1991 for all banks has been raised to Tk.400 crore of which the paid up capital shall be minimum Tk.200 crore. Banks having capital shortfall will have to meet the shortfall by august 11, 2011.]
Minimum liquidity requirement for NBFIs:
Required reserved 6%, raised from 5.50. Effective from 15 December 2010
Financial institute is required to maintain a Cash Reserve Ratio (CRR) of 2.50% on its customer deposits. The CRR is maintained with the non-interest bearing current account with the Bangladesh Bank. In addition, every financial institute is required to maintain a Statutory Liquidity reserve (SLR) of 5% (including CRR) on all its liabilities
[For Banks, the present statutory liquidity reserve (SLR) requirement is 20% of total demand and time liabilities, 4% of which is to be maintained as cash reserve ratio (CRR), and the rest 16% as approved securities. The SLR requirement for Islamic banks is 10% and they are to keep 4% of this reserve as CRR and the rest 6% in approved securities.]
Deposits and others funding sources, depository institutions both make direct loans to various entities and invest in securities. Income is derived from 2 sources i) income generated from the loans ii) fee income
Q32. What are the sources & uses of funds of a non-bank?
Sources of funds of NBFIs:
1. Capital, reserves and profit
2. Currency
3. Demand deposits
4. Other deposits
a. Banking and financial institutions
b. Public sector
c. Private sector
d. Foreign
5. Borrowings
6. Funds from other financial institutions
a. Domestic
b. Foreign
7. Insurance, provident and pension funds
8. Other liabilities
Uses of funds of NBFIs:
1. Currency
2. Deposits with other financial institutions
a. Domestic
b. Foreign
3. Loans and advances
a. Banking and financial institutions
b. Public sector
c. Private sector
d. Foreign
4. Securities
a. Treasury bills
b. Commercial bills
c. Malaysian Government Securities (MGS)
d. Corporate
o Private Debt Securities (PDS)
o Equities
e. Foreign
f. Others
5. Gold and forex reserves
6. Other assets
Q33. What do you mean by Loan Securitization? Explain its impact on banks
Securitization is the practice of creating and selling interests in the returns from a large pool of illiquid assets (assets that cannot easily be transferred). Securitizing assets with low liquidity, such as loans, allows the owner to sell the assets more easily.
The impacts of securitization are as follows:
1. Creates of markets in financial claims by creating tradeable securities
2. Spread of holding of financial assets as the security is designed in minimum size marketable lots as necessary
3. Promotion of savings- securitization makes it possible for the simple investors to invest in direct financial claims at attractive rates
4. Reduces costs- The intermediation costs, since the specialized-intermediary costs are service-related, and comparatively lower
5. Risk diversification- Securitization spreads diversified risk to a wide base of investors, with the result that the risk inherent in financial transactions is diffused
6. Focuses on use of resources, and not their ownership as a custodian for the several investors who thereafter acquire such claim
Q34. Importance of Loan Securitization
The issuers use securitization to finance their business activities. The financial assets that support payments on asset- backed securities include residential and commercial mortgage loans, as well as a wide variety of non mortgage assets. Securitized assets may be applied to any asset that has a reasonably ascertainable value, or that generates a reasonably predictable future stream of revenue.
Securitization leads to structured finance, as the resulting security is not a generic risk in entity that securitizes its assets, but in specific assets or cash flows of such entity. The idea of securitization is to create a capital market product that is, it results into creation of a security which is a marketable product.
Therefore, there is large scope for development in this area. Capital markets are today a place where we can trade, claims over entities, claims over assets, risks, and rewards. Let us consider certain types of securitization.
Q35. What is minimum capital and liquidity requirement for a non-bank financial institution?
Minimum capital requirement for NBFIs:
As per department of financial institutions and markets of Bangladesh bank circulate that the NBFIs to raise the paid-up capital by June 30, 2012 from Tk.50 crore to Tk. 100 crore and they would not be allowed to offer cash dividends until they fulfilled the newly-set paid-up capital requirement as a part of implementation of BASEL II. The foreign financial institutions operating in Bangladesh will also have to fulfill the same paid-up capital requirement.
[For Banks, as a part of implementation of Basel-II accord, banks are required to maintain minimum capital to risk-weighted assets ratio at 10% of which core capital will not be less than 5% effective from December 31, 2007. However, minimum capital requirements as required under Article 13 of Banking Companies Act, 1991 for all banks has been raised to Tk.400 crore of which the paid up capital shall be minimum Tk.200 crore. Banks having capital shortfall will have to meet the shortfall by august 11, 2011.]
Minimum liquidity requirement for NBFIs:
Required reserved 6%, raised from 5.50. Effective from 15 December 2010
Financial institute is required to maintain a Cash Reserve Ratio (CRR) of 2.50% on its customer deposits. The CRR is maintained with the non-interest bearing current account with the Bangladesh Bank. In addition, every financial institute is required to maintain a Statutory Liquidity reserve (SLR) of 5% (including CRR) on all its liabilities
[For Banks, the present statutory liquidity reserve (SLR) requirement is 20% of total demand and time liabilities, 4% of which is to be maintained as cash reserve ratio (CRR), and the rest 16% as approved securities. The SLR requirement for Islamic banks is 10% and they are to keep 4% of this reserve as CRR and the rest 6% in approved securities.]
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