Cenbank eyes pre-Eid liquidation for six NBFIs, awaits govt fund release

The Bangladesh Bank is fully prepared to begin the liquidation of six struggling non-bank financial institutions (NBFIs) plagued by irregularities, corruption and mismanagement, according to cenbank officials.

The process could begin before Eid, provided the government releases the required funds.

A senior central bank official told The Business Standard that Tk5,600 crore has been sought from the Finance Division to carry out the liquidation.

Infographics: TBS

"In reply, they asked us to determine our level of preparedness and outline the legal procedures. We have responded with details of our overall preparation. We hope to receive the funds before Eid," the official said.

"The Finance Division has informed us that the funds will be disbursed in two instalments. In the first phase, Tk2,600 crore will be given. The remaining Tk3,000 crore will be paid by June. 

"As soon as we receive the first instalment, we will appoint administrators in the institutions concerned. Their main task will be to repay individual depositors," the official added. "We will first settle the claims of individual depositors and then apply to the court for formal liquidation of the institutions."

On 27 January, the board of the Bangladesh Bank decided to liquidate six institutions. At the same meeting, three others were granted between three and six months to improve their position.

The three institutions are Bangladesh Industrial Finance Company (BIFC), GSP Finance Company and Prime Finance & Investment Limited.

An official from the central bank's Financial Institutions and Markets Department said the three institutions granted temporary relief must raise funds within the stipulated time and inform the bank.

"If they can recover a significant portion of their defaulted loans, they may not be placed under liquidation," the official said.

Stress in the sector

There are currently 35 NBFIs operating in the country. Of these, 20 have been identified by the central bank, the apex regulatory body for the country's monetary and financial system, as troubled.

These 20 institutions have total loans amounting to Tk25,808 crore, of which Tk21,462 crore – or 83.16% – are defaulted. Against this, the value of mortgaged assets stands at only Tk6,899 crore.

In contrast, the remaining 15 institutions are in relatively sound condition, with a default loan rate of 7.31%. Last year, they made a combined profit of Tk1,465 crore and held a capital surplus of Tk6,189 crore.

Deposits in the 20 troubled institutions total Tk22,127 crore. Of this, net individual deposits amount to around Tk4,971 crore. The central bank believes this amount will be required initially to support the liquidation and restructuring process.

The regulator has also confirmed that employees of the institutions under liquidation will receive all benefits in accordance with service rules.

Financial state of the 6 institutions

A review by the Bangladesh Bank shows that nine institutions are in what it described as a "non-viable" condition based on three indicators: failure to repay depositors, high levels of defaulted loans and capital shortfalls.

Among the six set for liquidation, FAS Finance has 99.93% of its total loans classified as defaulted, with accumulated losses of Tk1,719 crore. 

Fareast Finance has 98% defaulted loans and losses of Tk1,017 crore, while International Leasing has Tk3,975 crore in defaulted loans (96%), almost all of which are considered unrecoverable, and losses of Tk4,219 crore.

Peoples Leasing has 95% defaulted loans and losses of Tk4,628 crore; Aviva Finance has 83% defaulted loans and losses of Tk3,803 crore; and Premier Leasing has 75% defaulted loans and losses of Tk941 crore.

Of the three given more time, GSP Finance has 59% defaulted loans and losses of Tk339 crore.

BIFC has a 97.30% default rate and losses of Tk1,480 crore, while Prime Finance has 78% defaulted loans and losses of Tk351 crore.