NBFI stocks tumble amid liquidation fears after boards of 5 banks dissolved

Shares of several non-bank financial institutions (NBFIs) plunged sharply today, as panic gripped investors following the Bangladesh Bank's decision to dissolve the boards of five Islamic banks and appoint administrators to oversee their merger.

Already under regulatory scrutiny for possible liquidation, most NBFI stocks on the Dhaka Stock Exchange (DSE) nosedived, with FAS Finance, International Leasing, and Prime Finance each hitting the lower circuit limit of 10%. 

GSP Finance fell by 9.09%, while Bangladesh Industrial Finance Company (BIFC) dropped 7.4%. People's Leasing declined 7.05%, Premier Leasing shed 6.54%, and Fareast Finance fell 5.31%.

The sell-off came a day after Bangladesh Bank announced that it had dissolved the boards of Exim Bank, First Security Islami Bank, Social Islami Bank, Global Islami Bank, and Union Bank. 

The five banks are set to be merged amid severe capital shortfalls and governance failures. 

Following the announcement, the DSE promptly suspended trading in these banks' shares.

Bangladesh Bank Governor Ahsan H Mansur said shareholders and sponsors of the affected banks would receive nothing since their net asset values (NAVs) had turned negative – in some cases by as much as Tk450 against a Tk10 face value.

The remark sent shockwaves across the market, triggering fears that a similar fate could await struggling NBFIs already on the central bank's watchlist.

The panic intensified as investors recalled the central bank's August announcement – its plan to liquidate nine NBFIs to protect depositors' interests and restore confidence in the financial sector. 

Those institutions include FAS Finance, BIFC, Premier Leasing, Fareast Finance, GSP Finance, Prime Finance, Aviva Finance, People's Leasing, and International Leasing, eight of which are listed on the DSE.

Market insiders said today' s plunge was largely driven by retail investors rushing to offload shares out of fear that liquidation could leave them with no residual value, mirroring what happened with the five Islamic banks.

Earlier, in October, the DSE sent formal queries to the NBFIs following media reports about the liquidation plan. 

In their responses, several companies acknowledged that Bangladesh Bank had issued cautionary letters to 20 financial institutions, citing concerns about non-performing loans, liquidity shortages, and unpaid deposits. 

However, they claimed that they had not yet received any formal notice regarding liquidation and that they had submitted explanations to the regulator as required.