10 NBFIs fail to keep provisions

Staff Correspondent : Most of the country’s financial institutions are plagued by irregularities and corruption. Even after disbursing the loan, the institutions are not able to collect it. As a result, these institutions are failing to maintain provisions against bad loans. As of last September, 10 non-bank financial institutions have failed to maintain provisions.
This information has been found in the updated report published by Bangladesh Bank recently.

According to the data, 10 financial institutions failed to maintain provisions in the quarter ended September 2023. The list of failed institutions includes First Finance, GSP Finance, Hajj Finance, Industrial and Infrastructure Development Finance (IIDFC), Aviva Finance, Bay Leasing and Investment, Fass Finance and Investment, Meridian Finance, Phoenix Finance and Premier Leasing.
According to central bank data, Fas Finance and Investments topped the list of financial institutions that failed to maintain provisions. The institution, which is in a fragile financial situation, lags behind in collection of deposits and collection of loans compared to others. At the end of the September quarter of this year, the total amount of defaulted loans of Fas Finance and Investment stood at Tk 1,645 crore. Against defaults and other loans, the company needed a provision of around Tk 1,000 crore. Against this, only Tk 353 crore have been kept. Accordingly, the company has fallen into a provision deficit of Tk 646.67 crore.
Aviva Finance is second in the list of provision shortfalls. At the end of September quarter, the company’s provision deficit stood at Tk 544.56 crore. The amount of defaulted loans of the company is Tk 1,902 crores, which is 71.72 percent of the total disbursement.
Next is GSP Finance. At the end of September quarter, the provision deficit of this financial institution is Tk 314.55 crore.
Besides, the provision deficit of Premier Leasing is Tk 147 crore, Fast Finance is Tk 134 crore, Bay Leasing is Tk 93 crore, Hajj Finance is Tk 68 crore, IIDFC is Tk 46 crore, Phoenix Finance is Tk 21 crore and Meridian Finance is Tk 7.67 crore.
Officials of Bangladesh Bank say that this plight of financial institutions is due to lack of institutional good governance. Provision shortfalls are ominous signs for financial institutions. It shows the poor financial condition of the institutions.
As per rules, between 0.5% and 5% of operating profit is required as provision against regular or unclassified loans. Besides, 20 percent against bad classified loans and 50 percent against doubtful classified loans have to be kept as provision. However, 100 percent of the amount has to be set aside as provision against bad or loss category defaulted loans.
A provision deficit means that financial liabilities are greater than the cash held by these institutions. If defaulted loans increase, and income does not increase accordingly, provision deficit occurs.
Meanwhile, at the end of June, the default of financial institutions was Tk 19,951 crores, which is 27.65 percent of the total loans disbursed at that time. At the end of March, the amount of defaults in financial institutions was Tk 17,855 crores, which was 25 percent of the total loans at that time.