Nine Non-Banking Financial Institutions Face Closure Over Bad Loans

Although weak banks have been kept afloat through liquidity support, nine non-banking financial institutions (NBFIs) in the country are now on the verge of closure due to mounting bad loans. Bangladesh Bank has assured depositors that, similar to banks, the liquidation process will return their deposits. However, economists have advised reconsidering whether a fund could be established to keep these institutions operational.

The case of Saikat Das, a resident of Gazipur, illustrates the severity of the crisis. He invested approximately 700,000 taka in Aviba Finance, sourced from his tuition fees, his father’s savings, and other family contributions. After the institution announced its closure, Saikat repeatedly returned empty-handed when attempting to withdraw his money. He stated that, if his funds are not returned, he would have no alternative recourse.

Beyond Saikat, many other depositors are facing similar difficulties, having invested in non-banking financial institutions that have collapsed due to bad loans, fraud, and mismanagement. They claim that while influential individuals are able to recover their deposits, ordinary depositors face significant delays or are unable to retrieve their money at all.

In response, Bangladesh Bank has decided to close these nine institutions to restore order in the country’s financial sector. According to the central bank, last year the total non-performing loans across 35 non-banking financial institutions reached 25,089 crore taka, of which 52 percent were linked to these nine institutions.

Bangladesh Bank spokesperson Arif Hossain Khan stated that these institutions are so weak that there is no possibility of recovery, and therefore they have been placed under liquidation. The liquidation process will gradually return depositors’ money. He added that there will be no employee layoffs related to the closure, as the institutions themselves will cease to exist.

Questions remain about the fate of the bad loans and the mechanism through which depositors’ money will be returned. Drawing on experience of supporting banks through liquidity assistance, economists have suggested that, under certain conditions, NBFIs could be given an opportunity to restructure and recover.

Dr Taufiq Ahmed Chowdhury, former director general of BIBM, remarked that the institutions could be provided with a last round of capital support, with a fixed period to demonstrate whether they can regain stability. If they fail despite the opportunity, further measures would be implemented.

For comparison, among fifteen relatively well-performing financial institutions, total loans amounting to 49,643 crore taka included 3,627 crore taka as non-performing. Last year, these institutions recorded profits of 1,465 crore taka.

This situation has once again highlighted the urgent need for discipline, responsible management, and oversight in the non-banking financial sector of the country.