Five troubled financial firms approved for shutdown as govt pledges funds

The Bangladesh Bank board has given preliminary approval to shut down or liquidate five non-bank financial institutions (NBFIs) heavily burdened by defaulted loans, with operations expected to begin from July after funding assurances in the upcoming national budget.

The decision was taken at a board meeting held yesterday (12 May), chaired by Governor Mostakur Rahman. The institutions included in the liquidation list are FAS Finance, Fareast Finance, Aviva Finance, Peoples Leasing and International Leasing.

According to Bangladesh Bank officials, these institutions are facing non-performing loan ratios ranging from 93% to nearly 100%, leaving them unable to recover loans or return deposits to customers.

A senior central bank official said the entities will be shut down under the Bank Resolution Act, which outlines mechanisms for merging, restructuring or closing financially distressed institutions. 

As part of the process, each institution will be placed under an administrator appointed by Bangladesh Bank, along with two additional officials, and declared non-operational.

He added that individual depositors of the five institutions will be repaid, requiring an estimated Tk5,000 crore. The governor has confirmed that the government has assured budgetary allocation for this purpose in the next fiscal year, enabling the liquidation process to proceed.

The Bank Resolution Act also provides guidelines for selling assets of distressed institutions and settling creditor claims.

Earlier in May last year, Bangladesh Bank issued show-cause notices to 20 NBFIs over high default loans and failure to return deposits. Following weak recovery plans, nine institutions were initially considered for closure, including First Finance, Bangladesh Industrial Finance Company (BIFC), Fareast Finance, GSP Finance, Prime Finance, Aviva Finance, Peoples Leasing and International Leasing.

However, the list was later revised, first reducing it to six institutions in January by excluding GSP Finance, Prime Finance and BIFC, and subsequently removing Premier Leasing as well.

Bangladesh Bank data shows alarming default rates as of December: FAS Finance at 99.99%, Fareast Finance at 98.50%, Aviva Finance at 93.93%, Peoples Leasing at nearly 95%, and International Leasing at 99.44%.

Industry experts say widespread irregularities and financial misconduct during the previous Awami League government period significantly worsened the sector's crisis.

They cite allegations against former NRB Global Bank managing director PK Haldar, who is accused of embezzling at least Tk3,500 crore from four NBFIs, including Peoples Leasing, International Leasing, FAS Finance and BIFC.