5 financial institutions to be shut

Bangladesh Bank board of directors has given preliminary approval to wind up five non-bank financial institutions (NBFIs) in the country.

The winding up process of these institutions may start from July, sources said.

The decision was taken at a meeting of the Bangladesh Bank board of directors on Tuesday (May 12).

The institutions are FAS Finance, Fareast Finance, Aviva Finance, People's Leasing and International Leasing.

According to Bangladesh Bank data, the default loan rate of these institutions has reached almost 100 percent from 93 percent. The institutions are also failing to return the money to depositors due to their inability to collect loans for a long time.

Multiple sources at the central bank said that these institutions will be closed or wound up under the Bank Resolution Act. As part of the winding up process, a director of Bangladesh Bank will be appointed as an administrator in each institution. Two more officers will also perform their duties. The institutions will be declared ineffective later.

Bangladesh Bank officials say that about Tk5,000 crore will be required to return the money to individual depositors. For this, the central bank has received a positive assurance from the government about allocating money in the next budget. After that assurance, the decision has been taken to move forward with the liquidation process.

The Bank Resolution Act has provisions for merging, restructuring or closing down institutions in financial crisis. At the same time, the law has also determined how the creditors will be paid by selling the assets of the institution.

Earlier, in May last year, Bangladesh Bank issued show-cause notices to 20 NBFIs for failing to return high defaulted loans and deposits. Later, as the recovery plans of 9 institutions were not satisfactory, it was decided to close them or put them in the liquidation process. In January this year, some institutions were removed from that list and reduced to six. The last one, Premier Leasing, is being considered for liquidation.

The latest report of Bangladesh Bank shows that at the end of December, FAS Finance's default rate was 99.99 percent. Fareast Finance's was 98.50 percent, Aviva Finance's was 93.93 percent, People's Leasing's was about 95 percent, and International Leasing's was 99.44 percent.

According to those involved in the sector, the financial condition of these institutions collapsed due to irregularities, corruption, and massive loan scams in recent years. In particular, the controversial businessman PK Halder is accused of embezzling at least Tk3,500 crore from People's Leasing, International Leasing, FAS Finance, and BIFC.