Individual depositors of 9 NBFIs to get full principal, no interest, after liquidation

Highlights:

• Government to repay full principal to individual NBFI depositors
• Tk5,000 crore allocated for liquidating nine failing NBFIs
• Interest payments excluded from depositor refunds
• Institutional investors depend on asset recovery proceeds
• Bangladesh Bank to appoint liquidators under 2025 ordinance
• NBFIs deemed unsalvageable after massive loan defaults

Individual depositors of nine failing non-bank financial institutions (NBFIs) will receive their full principal back as the government steps in with a Tk5,000 crore support package for their liquidation, Bangladesh Bank Governor Ahsan H Mansur has said.

Institutional vs individual payouts

The liquidation strategy draws a sharp line between individual and institutional investors. In an interview with The Business Standard, the governor said the government had agreed to provide the funds needed to protect individual savers after the Bangladesh Bank decided to wind up the nine institutions under the newly enacted Bank Resolution Ordinance 2025.

"Individual depositors will get back their principal. Interests will not be paid," Mansur said, adding that institutional depositors would have to rely on whatever money is recovered through liquidation of the firms' assets.

The Bangladesh Bank will appoint a liquidator for each NBFI to assess assets and liabilities and sell off recoverable loans, properties and investments. The proceeds will then be distributed among creditors.

"For example, if Tk50 can be recovered against Tk100 of liabilities, institutional depositors will get Tk50," the governor said.

Infograph: TBS

Deeply distressed NBFIs

The central bank's board decided in December last year to liquidate a group of deeply distressed NBFIs after their loan portfolios collapsed under massive defaults. In the first phase, the Bangladesh Bank selected nine institutions whose combined depositor exposure could be covered within the Tk5,000 crore fiscal limit set by the government.

The nine NBFIs slated for liquidation are FAS Finance, Bangladesh Industrial Finance Company (BIFC), Premier Leasing, Fareast Finance, GSP Finance, Prime Finance, Aviva Finance, People's Leasing, and International Leasing.

Earlier, in January last year, the regulator had classified 20 NBFIs as financially distressed and placed them in the "red" category due to high non-performing loans and capital erosion. Those included CVC Finance, Bay Leasing, Islamic Finance, Meridian Finance, GSP Finance, Hajj Finance, National Finance, IIDFC, Premier Leasing, Prime Finance, Uttara Finance, Aviva Finance, Phoenix Finance, People's Leasing, First Finance, Union Capital, International Leasing, BIFC, Fareast Finance and FAS Finance.

Explaining why only nine are being liquidated initially, Governor Mansur said the government instructed the Bangladesh Bank to keep the fiscal burden within Tk5,000 crore.

"Based on that ceiling, we selected the institutions that could be resolved within this amount," he said.

Closing the insurance gap

Although Bangladesh's deposit insurance scheme guarantees up to Tk2 lakh per depositor, NBFIs were only recently brought under the amended ordinance and have not yet contributed to the insurance fund. As a result, the government has decided to cover depositors directly in this round of liquidations.

From this year, NBFIs will begin paying into the deposit insurance fund, bringing them under the same protection framework as banks, Mansur said.

Ahsan H Mansur said the liquidation process already started and all nine NBFIs were served show cause notices asking them to explain why they will not be declared dysfunctional.

"They are now being heard. If they fail to give a satisfactory explanation, we will move to formally declare them dysfunctional and appoint liquidators," the governor said.

He added that the Bangladesh Bank sees little chance of recovery as its assessments found no viable path for these institutions to return to solvency.