Defaulted loans in Bangladesh's non-bank financial institutions (NBFIs) rose to Tk1,333 crore from January to March.
According to the most recent Bangladesh Bank data, defaulted loans in NBFIs was a total of Tk17,855 crore at the end of March 2023, up from Tk16,821 crore at the end of December 2022.
Regarding the ongoing loan defaults, stakeholders stated that financial institutions made high-interest loans to shell corporations. The number of defaults is growing as they have not been repaid on time.
According to the Bangladesh Banks study, the liquidity issue in NBFI funds was triggered by a lack of public confidence and bank deposit withdrawals.
Data analysis revealed that 25.05% of the total outstanding loans was found to be defaulted in March 2023, which means the total outstanding loan amount for NBFIs in March increased to Tk71,265 crore from Tk70,436 crore in December 2022.
The total amount of defaulted loans was Tk14,232 crore in March 2022.
Year on Tear (YoY), loan recovery by NBFIs dropped by 5.46% to Tk6,586 crore in the January-March period compared with that in the preceding quarter in 2022.
Defaulted loan in companies
According to the BB report, the highest rate of defaulted loans belonged to People's Leasing and Financial Services with 99.62% followed by Bangladesh Industrial Finance Company 96.90% and Fareast Finance with 94.25% as of March 2023.
Among others, NPL of International Leasing and Finance was 90.93%, First Finance 89.63%, Union Capital 53.24%, IIDFC 50.20%, Premier Leasing 48.88%, Uttara Finance 45.75%, GSP Finance 42.7%, Bay Leasing 41%, National Finance 38.33%, Meridian Finance 33.83% and Aviva Finance 30.02% as of March 2023.
Deposits in NBFI
Deposits in non-bank financial institutions dropped by 1.19% or Tk53.8 crore at the end of March compared with that of December due mainly to lack of trust and confidence among customers in the entities.
However, despite NBFIs offering deposit interest rates above 6%, which are more competitive than those of most banks, they have struggled to improve their liquidity base.
Reason behind the crisis
Bangladesh Bank officials attributed the liquidity crisis in the sector to fund withdrawals by the banks from the NBFIs and lack of public confidence in the entities.
Market insiders said financial institutions have given loans to shell corporations at high-interest rates. As these have not been repaid on time, the amount of defaults is increasing.
On the other hand, massive irregularities prompted the government to initiate a process of liquidation of People's Leasing and Financial Services in 2019.
The liquidation process was later scrapped and steps have been taken to revive the entity following a court order.
Apart from People's Leasing, Bangladesh Industrial Finance Company and International Leasing and Financial Services are among the other NBFIs which are going through an intense crisis.
There are now 35 non-bank financial institutions operating in the country.
