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After years of irregularities, soaring defaults, and capital shortfalls, Bangladesh Bank has finally decided to shut down nine non-bank financial institutions (NBFIs) that have become “non-operational.”

The central bank will liquidate the institutions under the Finance Company Act 2023. Small depositors, however, will be repaid, while employees will receive benefits as per service rules.

The decision was taken last Thursday in an emergency meeting chaired by Governor Ahsan H Mansur, followed by his formal approval. The central bank’s Resolution Department has already started preparations to cancel licenses and initiate liquidation.

The institutions set to close are: People’s 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, and Prime Finance and Investment Limited.

Govt’s cost of closure: Tk 9,000cr

According to central bank sources, the government will require around Tk 9,000 crore for the liquidation process. Of this, priority will be given to refunding small depositors, whose net deposits amount to nearly Tk 4,971 crore.

Bangladesh Bank’s review shows that the overwhelming majority of these NBFIs’ loans have turned into non-performing loans (NPLs).

• FAS Finance: 99.93% classified loans
• Fareast Finance: 98%
• BIFC: 97.30%
• International Leasing: 96% (default loans Tk 3,975 crore, mostly irrecoverable)
• People’s Leasing: 95% (losses Tk 4,628 crore)
• Aviva Finance: 83% (losses Tk 3,803 crore)
• Premier Leasing: 75% (losses Tk 941 crore)
• GSP Finance: 59% (losses Tk 339 crore)
• Prime Finance: 78% (losses Tk 351 crore)

Why licenses were cancelled

Under Section 7(1) of the Finance Company Act 2023, the license of a financial institution may be revoked if it acts against depositor interests, fails to meet liabilities, or does not maintain capital adequacy.

Earlier on May 22, Bangladesh Bank issued show-cause notices giving these institutions 15 days to respond. As their replies were deemed unsatisfactory, the central bank proceeded with cancellation.

Industry-wide crisis

Bangladesh currently has 35 licensed NBFIs, of which 20 are already marked as “problematic.”
Collectively, these troubled institutions hold loans worth Tk 25,808 crore, of which Tk 21,462 crore are classified — an alarming 83.16% default rate.