Ailing First Finance to have five new independent directors
The regulatory intervention came as a consequence of the company’s frustrating performance in business and also in the secondary stock market
Burdened with unusual non-performing loans and continuous capital erosion, First Finance Ltd now awaits five new independent directors as the securities regulator has directed the recasting of the struggling non-bank financial institution's (NBFI) board through their inclusion.
According to the Dhaka Stock Exchange (DSE), the Bangladesh Securities and Exchange Commission (BSEC) this week directed the reconstruction of the publicly traded NBFI's board of directors within 45 working days.
The company must appoint Major General (retd) Abul Kalam Mohammad Humayun Kabir, Khandoker Nizamuddin, Mohammad Rafiqul Islam Rowly, Prof Mohammad Shofiqul Islam, and Dr Qazi Moinuddin Mahmud as its new independent directors, while it may also appoint directors among its eligible shareholders, said the DSE.
The regulatory intervention came as a consequence of the company's frustrating performance in business and also in the secondary stock market.
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Of every Tk100 loan disbursed by First Finance, over Tk86 was stuck as non-performing loans, and the problem spilled over to all its financial indicators – piling up losses, shareholder equity erosion, and years of no dividend.
How the bad loans surge that much
Amid some weak monitoring and supervision earlier, some of the First Finance loans' recovery went irregular, and the company fell into a vicious cycle of struggles for deposits, poor recovery, and business growth, said Maksumul Mahmud, the deputy managing director of the firm.
"If there had been regular business growth, the NPL ratio could have gone down much lower," he said, adding, "But, increasing deposits has been our biggest challenge."
He, however, is confident that the disbursed loans that went irregular later were given against rock-solid collateral, and he claimed that the loans were not disbursed in any compromised way or under any influence.
"We did not try to hide the problems with our assets by drawing a rosy picture of the loans; instead, we classified all troubled loans as bad ones and filed money loan suits to recover our money."
Around 800 cases were filed to recover assets, he said, adding that the recent value of many of the collateral assets might even surpass the loans.
To save their property, some clients have been coming to pay back loans, according to Mahmud.
Shareholders' pains
Starting as a leasing company in 1999 and going public in 2003, First Finance grew its paid-up capital to over Tk118 crore, and outstanding loans stood at only Tk927 crore at the end of September last year.
Its shareholders got no cash dividends for 14 years in a row, and it has been a Z-category company in the bourses since 2016 due to no cash or stock dividends. Since then, increasing recognition of bad loans has not allowed the company to show a profit except for the year 2019.
The 2% stock dividend it announced in 2019 was a violation of rules, according to the BSEC.
The rising curve of net annual losses that skyrocketed to Tk219 crore in 2021 eroded shareholders' equity, which sank to minus Tk170 crore, according to the DSE.
First Finance shares having a face value of Tk10 closed at the floor price of Tk5.5 apiece on Thursday in the DSE. At the peak of the 2010 bull market, the stock hit above Tk200.
A BSEC notification in September 2020 said that any listed company will get its board restructured to include regulator-nominated independent directors within 45 days of being placed in the Z category.
