THE failure of the authorities to take measures to discipline and facilitate the ailing non-bank financial institution sector, crippled by an abnormally high defaulted loans, is unacceptable. More than 70 per cent of non-bank financial institutions are about to collapse. The Bangladesh Bank says that 21 of the 35 institutions have more than 50 per cent of their outstanding loans defaulted while more than 80 per cent of loans in many NBFIs are in danger of default. Almost all the loans of five NBFIs 鈥� FAS Finance, Far East Finance, Bangladesh Industrial Finance, People鈥檚 Leasing and Financial Services and International Leasing 鈥� are defaulted. The situation is equally grim for other NBFIs. Union Capital has a 94 per cent default rate, Aviva Finance 90 per cent, Phoenix Finance 88.57 per cent and First Finance 87.82 per cent. In all, 35.52 per cent of the sector鈥檚 total loans became defaulted or classified by September 2024. With such defaulted loans, the NBFIs suffer from liquidity crisis and trust deficit, resulting in a deposit contraction when the banks posted a growth in deposit and NBFIs offer higher interest rates on deposits.
Widespread irregularities, coupled with unaccountable governance, crippled the non-bank financial institutions as they did the banks, during the Awami League regime, and the NBFIs appear to have failed to win depositor confidence.聽Non-deserving and shell companies managed to receive large loans from the NBFIs in 15 years. Massive irregularities and subsequent media criticism prompted even the Awami League government to initiate a process of liquidation of People鈥檚 Leasing and Financial Services, from which PK Halder and his associates embezzled billions, in 2019, which was later scrapped and steps were taken to revive the entity on a court order. The Bangladesh Bank earlier asked the non-bank financial institutions to identify wilful loan defaulters and take action against them. The initiative could help the NBFIs to win confidence and recover from the sorry state they have fallen into. But there has been no satisfactory progress and the NBFIs have failed to recover the loans and take action against the defaulters. When NBFIs continue to remain at the forefront of driving new investments in other South Asian and Asian countries, poor governance and widespread irregularities have turned the NBFI sector in Bangladesh precarious and unable to contribute to the economy.
The central bank and the NBFIs should, therefore, be stringent about loan recovery. They also need to attend to issues such as a lack of internal governance, deficiency in risk management and absence of long-term sources of liquidity to revive the sector. Given that the sector is large enough now to impact the economy, the central bank needs to effectively regulate the sector so that it can play its part.
