Financial institutions weakening day by day

Zarif Mahmud: The fund crisis has become evident in the non-banking financial institutions of the country. The amount of deposits of the institutions has decreased, but loans have increased slightly. At the same time, the amount of defaulted loans has increased as the amount of loan recovery has decreased significantly.
According to Bangladesh Bank’s stress test report, 14 non-banking financial institutions (NBFIs) out of a total of 35 were in the ‘red zone’ or weak position last year.
According to the Central Bank’s Stability Report 2022, this number was 12 in 2021. Last year, 7 non-banking institutions were in ‘Yellow Zone’ and 14 in ‘Green Zone’.
Non-banking institutions whose financial condition is good are divided into ‘green’, institutions in moderate condition ‘yellow’ and institutions in poor condition ‘red zone’.
Bangladesh Bank says that 21 non-banking institutions are under pressure but they will remain in normal condition. However, 14 institutions are at risk due to rising defaulted loans.
On the one hand, the institutions are now facing severe financial crisis due to decrease in deposits, increase in defaulted loans due to low loan collection and decrease in income of the institutions due to business recession.
The report did not mention the names of non-banking institutions. Since 2020, the number of non-banking institutions in good standing has been steadily decreasing and the number of institutions in bad standing has been increasing.
The number of non-banking institutions in good standing in 2020 was 18. It came down to 16 in 2021 and 14 in 2022. On the other hand, the number of weak financial institutions was 13 in 2020 and decreased to 12 in 2021.
A Bangladesh Bank report attributed the increase in defaulted loans to a large number of borrowers defaulting on their payments.
Maximum 19 percent of loans and leases of non-banking institutions are in electricity, gas, water and sanitary services, 14 percent in ready-made garments and 11.44 percent in textiles.
According to the data of Bangladesh Bank, non-banking institutions had defaulted loans of Tk 17,855 crore in March. It was Tk 14,232 crore in the same period of the previous year. About a quarter of the total loans are defaulted loans.
Golam Sarwar Bhuiyan, Chairman of Bangladesh Leasing and Finance Companies Association and Managing Director of Industrial and Infrastructure Development Finance Company Limited, told that bad loans are the main reason for the weak condition of 14 non-banking institutions.
Due to the corona pandemic, borrowers got late repayment facility in 2020 and 2021. Golam Sarwar Bhuiyan said that the amount of defaulted loans has increased due to withdrawal of this facility last year.
International Leasing and Financial Services had the highest number of defaulters till last March. Its amount is Tk 3,755 crore.
According to the information of the central bank, out of this Tk 1,649 crores of FAS Finance, Tk 1,013 crores of Uttara Finance, Tk 907 crores of People’s Leasing, Tk 967 crores of Phoenix Finance, Tk 886 crores of First Finance, Tk 848 crores of Infrastructure Development Company Limited, First Finance has Tk 835 crore, Aviva Finance Tk 798 crore and Bangladesh Industrial Finance Company Tk 755 crore.
In 2020, the Central Bank inspection team found widespread irregularities and financial scams in a dozen non-banking institutions including People’s Leasing, International Leasing, Premier Leasing, Uttara Finance and First Finance.
A senior Bangladesh Bank official said on condition of anonymity that non-banking loans have increased in recent years.
Golam Sarwar Bhuiyan said, “The condition of non-banking institutions has worsened due to lack of corporate governance.”
In Bangladesh, non-banking institutions have been in image crisis for a long time due to irregularities and scandals in the lending of some institutions. Institutions face funding crunch as depositors’ confidence declines, which is another reason for their poor condition.
“The condition of non-banking financial institutions is getting worse day by day,” Muinul Islam, a former professor of economics at Chittagong University told, “They are hiding the true picture of this sector.” The situation will worsen if it is revealed. But, they can’t hide it for long.’
He believes that the fragile condition of this sector will not improve if the central bank does not take strict action against those responsible.