Bangladesh Bank has decided to take five non-banking financial institutions (NBFIs) of the country, which have been in crisis for a long time, into the process of liquidation or closure.
For this purpose, the boards of directors of the institutions will be abolished and administrators will be appointed. After the administrator takes charge, the process of returning up to Tk10 lakh to individual depositors will begin.
The decision was taken at a meeting of the board of directors held at the head office of Bangladesh Bank on Tuesday. Governor Mostakur Rahman presided over the meeting.
According to Bangladesh Bank sources, the meeting reviewed the condition of nine financial institutions that have been in crisis for a long time. As there is no possibility of recovery of five of them, it was decided to take them into the liquidation process.
At the same time, the remaining four institutions have been given three months to turn around.
The institutions initially selected for liquidation are FAS Finance, Fareast Finance, Aviva Finance, People's Leasing and Financial Services and International Leasing and Financial Services.
On the other hand, Bangladesh Industrial Finance Company (BIFC), Premier Leasing and Finance, GSP Finance and Prime Finance have been given three months as an opportunity to recover.
A senior Bangladesh Bank official said that the five institutions on the liquidation list have deposits of around 27,000 individual depositors worth Tk2,700 crore.
In the first phase, the boards of directors of these institutions will be abolished and administrators will be appointed. After that, the process of returning the depositors' money will begin. Individual depositors will get a maximum refund of Tk10 lakh.
He said that the institutions that have been given three months will have to prove their ability to repay the principal of individual depositors within this period. If this is not possible within the stipulated time, they will also be brought under the resolution or liquidation framework.
According to the latest report of Bangladesh Bank, the default loan rate of the institutions on the liquidation list at the end of last December has reached a very worrying level.
The default loan rate of FAS Finance is 99.99%, International Leasing is 99.44%, Fareast Finance is 98.50%, People's Leasing about 95%, and Aviva Finance 93.93%.
Bangladesh Bank had issued show cause notices to 20 NBFIs in May last year due to high default loans, liquidity crisis and failure to return deposits.
Although some institutions were later removed from the list through review, it has been decided to initiate liquidation process against five institutions due to their weak financial condition.
According to industry stakeholders, the situation of some financial institutions became dire due to irregularities, poor governance and loan scams in the past years.
In particular, the much-discussed PK Halder is accused of embezzling at least Tk3,500 crore from People's Leasing, International Leasing, FAS Finance and BIFC.
According to analysts, the country's financial institutions sector has been under pressure for a long time due to high default loans, liquidity crisis and weak management.
In this situation, the resolution initiative of Bangladesh Bank is being considered as an important step for the sector to determine the future of weak NBFIs and protect the interests of depositors.