Classified loans of NBFIs soar sharply

Classified loans of the country's non-bank financial institutions rose sharply, amounting to Tk13,016 crore at the end of the last year, thanks to the lenders' irrational loan disbursements and irregularities amid weak monitoring by the Bangladesh Bank. 

Out of 34 financial institutions, twelve – Aviva finance, CVC Finance, Fareast Finance and Investment, First Finance, Industrial and Infrastructure Development Finance, Infrastructure Development, MIDAS Financing, National Finance, Phoenix Finance and Investments, Premier Leasing, Union Capital, Uttara Finance – saw up to 300% surge in classified loans in 2021, according to the central bank quarterly report. 

Besides, others also witnessed slight increases in such loans in the Covid-hit year, raising the total classified loans by Tk2,957 crore or 29.41% year-on-year. 

As of December 2021, the total disbursement of the 34 institutions stood at Tk67,354 crore, while around one-fifth or 19.33% of the disbursement was classified. In 2020, the disbursement was Tk10,053 crore and classified loans were 15.02%.

"A huge amount of money was taken in favour of different names from several non-bank financial institutions but the loans were not returned. As a result, many lenders are now struggling to back their customers' deposits," said ABM Mirza Azizul Islam, former advisor of a caretaker government.

"The irregularities took place thanks to weak monitoring by the central bank," he told The Business Standard. 

When asked about the alarming rise of the classified loans of the non-bank financial institutions, a Bangladesh Bank senior official, seeking anonymity, told TBS that many lenders had been hiding data of non-performing loans for long. 

"In recent inspections by the central bank, some cases like that of People's Leasing were unearthed, which contributed to the sharp rise in the classified loans," he said, adding that many borrowers were now unable to repay loans as they were hit hard by the pandemic, which was another reason.

However, the classified loans decreased Tk26 crore in the second quarter of 2021 to Tk10,328 crore from Tk10,354 crore in the first quarter. It again jumped Tk1,429 crore in the third quarter and Tk1,259 crore in the last quarter of the year. 

Of the total 13,016 crore classified loans, six institutions –  Bangladesh Industrial Finance, Fareast Finance and Investment, FAS Finance and Investment, First Finance, International Leasing and Financial Services, Premier Leasing and Finance – held Tk7,916 crore or 60.81% of the total non-performing loans, as of December 2021, the Bangladesh Bank data said.  

The irregularities of the non-bank financial institution sector came to light one after another, especially after the fall of People's Leasing in 2019. Later, the Bangladesh Bank marked several troubled institutions – including International Leasing and Financial Services, and Bangladesh Industrial Finance – red and kept them under special monitoring.  

Investors feel the pinch

At the end of 2020, classified loans of publicly listed company Uttara Finance were just Tk270 crore, a 9% of its total disbursement, which jumped to Tk998 crore in December 2021. It was 41.68% of the then disbursement. 

The company did not distribute dividends among its stock investors in 2020 and 2021. For the last time, it provided its revenue data for the July-September quarter of 2019, showing a Tk149 crore loss. 

Currently, it has a total of 13.14 crore shares in the capital market, each traded for Tk39.50 on 2 April. 

"Uttara Finance had shown lower classified loans by hiding data, and the Bangladesh Bank's inspection unearthed the actual figure, which resulted in the sudden surge in classified loans," the central bank official said. 

Another ailing listed company, Farest Finance, saw an increase in its classified loans to 89.95% of the total disbursement in 2021, from  51.9% in 2020.

Although a share of the company was issued at Tk10 in an initial public offering, it was traded at Tk5.8 on 31 March. Besides, the company did not provide any dividends after 2016.

First Finance is also facing a similar situation. A share of the company was traded at Tk5.70 on the same day. It provided 10% dividends in 2013, 5% in 2014 and 2% in 2019 but did not share dividends with public investors later. 

Classified loans of the First Finance increased to Tk741 crore last year, from Tk262 crore a year earlier. Now, around 82% of loans of the company are non-performing, which was 30% in 2020. 

The board of directors of the company has recently terminated its managing director (in-charge) Tuhin Reza for allegedly committing huge irregularities.

Several other listed non-bank financial institutions are also depriving their stock investors of dividends, due mainly to their poor performances with huge amounts of classified loans.