Since the announcement of the liquidation of People's Leasing, the share prices of financial institutions nosedived, some selling below their face value
Stock investors have suffered losses due to panic triggered by the news of liquidation and trading suspension of People’s Leasing and Financial Services Ltd (PLFS) from July 14, a non-bank financial institution (NBFI).
Since the announcement of the liquidation of People's Leasing, the share prices of financial institutions nosedived, some selling below their face value.
Shares in eight listed non-banking companies were traded below their face value of Tk10 on Saturday. The companies are Bangladesh Industrial Finance, Fareast Finance, FAS Finance, First Finance, International Leasing, Premier Leasing, Prime Finance and Union Capital Limited. End of June of 2019, shares in six companies was traded below their face values.
The financial institution sector contributed 4.89% of the total turnover of the Dhaka Stock Exchange (DSE) in the last fiscal year. After June this figure fell to 4.09%. The sector contributed 5.29% of the market capitalization of the prime bourse as of June.
Meanwhile, four more non-bank financial institutions — International Leasing and Financial Services, FAS Finance and Investment, Bangladesh Industrial Finance and Prime Finance —have become defaulters as they are failing to pay back their clients, as per media reports.
In the weekly ranking (14-18 July), 50% of the top ten losers were from non-bank financial institutions or NBFI listed with the Dhaka Stock Exchange. In the just concluding week (21-25 July) the top five loser companies were NBFIs.
High official at the Bangladesh Securities and Exchange Commission have said they sent a letter last week to Bangladesh Bank for its effective role to bring stability in financial sector for the sake of stock investors.
On 14 July, DSE and Chittagong Stock Exchange (CSE) suspended the trading of People's Leasing shares. The DSE decided to suspend share trading of the ailing non-bank financial institution in accordance with Regulation 50 of the Dhaka Stock Exchange (Listing) Regulations, 2015.
The company's share trading will remain suspended until confirmation from Bangladesh Bank on its liquidation.
Meanwhile, the central bank filed a petition with the High Court, seeking permission to liquidate People’s Leasing as the organization’s financial health deteriorated badly in recent times because of its loan irregularities.
The High Court accepted the petition and passed an order to freeze all bank accounts of former directors of People's Leasing, who were appointed before 2015.
Due to continued losses, the listed PLSF failed to announce any dividend since 2014. Each of People’s Leasing shares closed at Tk3.0 in last trading hour.
Out of 22 (without PLSF) listed companies in the premier bourse, 16 are listed in the ‘A’ category, meaning they regularly provide dividends to shareholders. The remaining two listed firms are under B category and four financial institutions under Z category.
The Z category companies are First Finance, Prime Finance, Bangladesh Industrial Finance and Fareast Finance.
Former president of Bangladesh Leasing and Finance Companies Association (BLFCA) A Quadir Chowdhury told Dhaka Tribune that this situation in financial institution sector stared 10 years ago, which was due to unprofessional directors.
“If any company of the stock market performs badly, the entire sector is affected. So shareholders need to invest after they have acquired financial literacy,” he suggested.
Stock market expert and former Dhaka University teacher Professor Abu Ahmed told Dhaka Tribune that the small investors, muddled by the falling trend in the market and haphazard environment in the financial market, kept selling shares amid volatility in the market. The investors were going through a volatile situation amid financial scams.
Earlier on June 27, the finance ministry instructed the central bank to close the NBFI for its failure to improve its conditions.
The ministry arrived at the decision after going through a detailed central bank report on PLFS.
The NBFI failed to repay the depositors’ money despite maturity of the funds, found the Bangladesh Bank report. Default loans and net losses have recently escalated as well.