After years of irregularities and mismanagement, nine non-bank financial institutions (NBFIs) in Bangladesh are set to be closed. These institutions have been declared "non-viable" by Bangladesh Bank due to their failure to return depositors’ money, soaring default loans, and severe capital shortfalls. The central bank has decided to liquidate them, although the government will refund small depositors and employees will receive benefits according to employment regulations.

The decision was taken during an emergency meeting last Thursday between Governor Ahsan H. Mansur and the relevant departments of Bangladesh Bank. Following the Governor’s approval, the Resolution Division of Bangladesh Bank has initiated preparations to revoke licences and begin the winding-up process under the Finance Company Act 2023.

The institutions to be shut down are Peoples Leasing and Financial Services, International Leasing and Financial Services, Aviva Finance, FAS Finance and Investment, Fareast Finance and Investment, Bangladesh Industrial Finance Company (BIFC), Premier Leasing and Finance, GSP Finance Company and Prime Finance and Investment Limited.

According to central bank sources, the estimated initial cost of the closures will be around Tk9,000 crore. The highest priority will be given to repaying small depositors, whose net personal deposits amount to nearly Tk4,971 crore, according to Bangladesh Bank’s estimates. This figure will be addressed in the initial phase of liquidation.

The central bank’s assessment shows that the majority of loans from these institutions are in default. For example, FAS Finance has a default rate of 99.93%, Fareast Finance 98%, BIFC 97.30% and International Leasing 96%.

International Leasing alone holds Tk3,975 crore in default loans, most of which are deemed unrecoverable. Peoples Leasing has a 95% default rate and has incurred losses amounting to Tk4,628 crore. 

Other institutions show similarly dire statistics: 

Aviva Finance: 83% default, Tk3,803 crore loss, 

Premier Leasing: 75% default, Tk941 crore loss

GSP Finance: 59% default, Tk339 crore loss

Prime Finance: 78% default, Tk351 crore loss

In light of this, Bangladesh Bank is taking steps to cancel their licences under Section 7(1) of the Finance Company Act 2023, which allows for such action when a company fails to protect depositors’ interests, lacks the assets to meet liabilities, or fails to maintain capital requirements. Under Section 7(2), the institutions were given 15 days to respond with cause, with notices issued on 22 May. As no satisfactory responses were received, the central bank has moved ahead with the liquidation decision.

Currently, Bangladesh has 35 non-bank financial institutions. Of these, 20 have been identified as problematic. These troubled institutions hold a total loan portfolio of Tk25,808 crore, of which Tk21,462 crore are non-performing—an alarming default rate of 83.16%.