NBFIs asked to submit action plan by Dec to reduce bad loans 

The Bangladesh Bank has asked for action plans from non-bank financial institutions (NBFIs) to reduce their capital shortfalls and defaulted loans.

Additionally, the central bank directed the institutions to demonstrate progress in the implementation of the action plans by the end of December.

The monetary authorities have intervened as a number of NBFIs find themselves in dire straits due to various reasons, including loan irregularities and resulting capital and provision shortfalls.

Deputy Governor Kazi Sayedur Rahman issued the instructions when the Bangladesh Bank met with the managing directors of seven financial institutions at its headquarters on Sunday, said sources present at the meeting.

Executive directors, directors, and other officers from the Financial Institutions Division also attended the meeting.

Mezbaul Haque, spokesperson for the Bangladesh Bank, said in the meeting that seven NBFIs have been asked to immediately provide the money market regulator with their action plans to improve their financial health so that the capital shortfall and defaulted loans will be reduced by next December.

Very soon, the rest of the financial institutions will be brought under this directive, he said, adding, however, that some financial institutions do not face a capital crunch.

The spokesperson also said the problems of each institution are different. So the problem-solving plans should come from them. Only then will the correct solution be found. The Bangladesh Bank wants to see visible improvement by next December.

During a meeting with the managing directors of financial institutions on 27 August, the Bangladesh Bank said 15 out of the 35 NBFIs in the country have defaulted on loans of more than 32%.

Expressing concern about the worsening condition of the financial institutions, the Bangladesh Bank ordered the NBFIs to give top priority to returning the money to depositors.

According to data from the Bangladesh Bank, defaulted loans in financial institutions in the April-June quarter exceeded Tk2,000 crore. At the end of June, the total amount of defaulted loans in this sector increased to Tk19,951 crore, which is 27.65% of the total disbursed loans.

Currently, out of 35 financial institutions, six have more than 80% non-performing loans.

Officials at financial institutions said the Bangladesh Bank gave banks a facility a few days ago under which no borrower will become a defaulter if he pays half of the loan instalments.

But in the case of NBFIs, this benefit has not been maintained. As a result, defaulted loans have increased at financial institutions. Apart from this, due to irregularities, the image is damaged, and there is a problem in getting deposits, they added.

Besides, many borrowers could not repay their loans on time due to poor business conditions. Therefore, the defaulted loans of financial institutions have increased, according to officials.