BB moves to liquidate five NBFIs with Tk2,000cr from govt fund

Infograph: TBS

The central bank plans to seek Tk2,000 crore from the government's budget allocation to liquidate five non-bank financial institutions (NBFIs) that are already declared non-viable.

The initial allocation would be used to make quick payments to individual depositors and help contain unrest in the financial sector, a senior Bangladesh Bank executive said.

"The money includes provident fund, personal trust fund, and other individual savings. Cooperative funds are also included as they comprise contributions from many ordinary people," he said.

The official also said the previous plan was to repay depositors in full. However, the National Board of Revenue opposed funding the entire amount from the budget and suggested financing part of the payments from recovered assets.

The central bank recently brought four NBFIs under the Bank Resolution framework, declaring them non-viable. They are Aviva Finance, Fareast Finance and Investment, FAS Finance and Investment, and International Leasing and Financial Services.

The next step is to initiate their liquidation, said the BB official, requesting anonymity.

People's Leasing and Financial Services, placed under liquidation in 2019, is also expected to be included in the current plan, subject to a court decision.

"Initially, the plan was for five companies, so the request is being prepared on that basis. We haven't requested the money yet, but the discussion is around Tk2,000 crore," he said.

Around Tk1,500 crore may initially be needed for the four institutions. If People's Leasing is included, the requirement could rise to around Tk2,000 crore, added the official.

4 others given 3 months

The official said BB's decision initially covered nine institutions. Four, however, were given three months to regain financial viability under Section 15 of the Bank Resolution Act.

In July, Prime Finance and Investment, GSP Finance Company (Bangladesh), Bangladesh Industrial Finance Company, and Premier Leasing and Finance were given the window.

If the institutions fail to meet the conditions, they will also be brought fully under the resolution framework, he added.

Their sponsors have also been asked to inject fresh capital as equity, rather than fixed deposits or other claim-bearing instruments. The funds will remain part of the institutions' capital and cannot later be withdrawn or reclaimed.

Depositors get first priority

The general idea is to fully repay deposits of up to Tk10 lakh. Whether the amount will be paid in phases is yet to be decided. If loans and other assets are recovered, both the government and depositors could ultimately recover their full claims, the official said.

Bangladesh Bank is now developing a depositor payment scheme, the official further added.

He said NBFIs are not covered by the Deposit Protection Act. They have no insurance protection, no security, no backup. "If they go into liquidation tomorrow, depositors are not legally guaranteed to receive anything."

"That's why we're thinking of bringing them under the resolution framework first. Once they are, we can take various measures, including paying some money to the public," he added.

The officials further said administrators have already been appointed for the four NBFIs. "If People's Leasing remains outside the process, public depositors could suffer the most as liquidation cases can drag on for years."

"Institutional depositors will not be eligible for such support, he said. "They will have to wait for liquidation and receive whatever they are entitled to under the legal order of priority."

"Under the resolution law, depositors have first priority," he said. "In liquidation, all liabilities remain in place, with recoveries from borrowers, asset sales, and court decrees distributed according to the statutory hierarchy of claims."

Employees will at least receive their provident fund balances. Shareholders rank last and are unlikely to receive anything unless all higher-priority claims are fully settled.

Borrowers will not have their loans waived. Those responsible for losses may face penalties of up to twice the amount involved, while related parties may also face prosecution, he said.

Forensic audits to identify culprits

The official said the BB will conduct forensic audits to determine the institutions' actual financial positions, as they currently have only approximate figures.

"Auditors have sought records that the financial institutions have been unable to provide. Most of these institutions don't have core banking systems, and their maintenance contracts expired, forcing them to maintain records manually in a disorganised manner," he said.

"That's why we will conduct forensic audits to determine the true assets and liabilities and identify those responsible for irregularities and possible money laundering. Everyone responsible will be held accountable, cases will be filed and legal action will be taken."

Once the assets and liabilities are established, the cases may be taken to court under the resolution framework, followed by the appointment of liquidation administrators.

"For now, the institutions continue normal operations, with their main constraint being insufficient cash to repay depositors," he added.

How liquidation to impact NBFI sector

Fahmida Khatun, executive director of the Centre for Policy Dialogue, said the move shows that the BB is beginning to take stronger action against weak and non-viable institutions.

NBFIs have operated under a less stringent regulatory and monitoring framework, while weak governance and inadequate supervision allowed problems to persist, she said. 

A key concern was the perception among some NBFI owners that the government would eventually rescue weak institutions, she said.

"The decision should also warn existing owners that they must maintain sound governance, adequate capital and operational discipline. It could encourage prospective investors to enter the sector with realistic business plans and sufficient capital," she added.

Kazi Mahmood Sattar, chairman of IDLC Finance, said many of the affected NBFIs had been effectively non-functional for years, with default rates as high as 88-98%.

"Depositors had little realistic hope of recovering their money while the institutions remained closed but technically operational. Liquidation at least creates a formal recovery mechanism, giving depositors some prospect of recovering part of their funds," he said.

While stronger institutions such as IDLC, IPDC, DBH and LankaBangla were less affected, mid-tier and weaker firms faced growing funding challenges. Removing chronically insolvent entities could help clean up the sector and restore confidence in viable NBFIs, Sattar added.

He said the move should also serve as a lesson for small capital market investors, who should assess NBFIs' balance sheets, governance and risk profiles before investment.

M Jamal Uddin, CEO and managing director of IDLC Finance, said the public currently struggles to distinguish between financially sound and unsound NBFIs.

"Removing non-compliant institutions can create a clearer distinction, strengthen confidence in well-managed institutions and improve trust in the sector," he added.

He said protecting small depositors remains a critical concern and Bangladesh Bank might need to introduce a compensation, protection or support scheme to mitigate their losses.

Health of NBFI sector

The BB's latest stress test found that the resilience of finance companies weakened further by the end of December 2025, with only 12 of 35 NBFIs able to withstand the prescribed stress scenarios. Of these, 10 were classified as "Sound" and two as "Moderate", while the remaining 23 were categorised as "Weak".

As of September 2025, only 15 of the 35 NBFIs met the minimum regulatory requirements for both capital adequacy ratio (CAR) and core capital.

Persistently negative and below-minimum capital ratios indicate severe capital shortfalls and pose risks to financial stability in the sector, said BB's financial stability assessment report.