9 NBFIs to be wound up: Individual depositors to receive funds in 2 phases

Individual depositors of nine non-bank financial institutions (NBFIs) that have been decided for closure will have their money refunded. This will require an expenditure of approximately Tk 50 billion (5,000 crores).

Bangladesh Bank has received assurances from the government that the required funds will be provided. Following this commitment, the central bank is now initiating the liquidation process for the institutions concerned.

According to Bangladesh Bank sources, as part of the liquidation process, one director from the central bank will be appointed as administrator for each institution. In addition, two further officials will be appointed to each entity. The institutions will simultaneously be declared non-operational.

Sources concerned said that the nine financial institutions for which a final decision on closure has been taken are: Peoples Leasing, International Leasing, Bangladesh Industrial Finance Company (BIFC), FAS Finance, Aviva Finance, Fareast Finance, GSP Finance, Prime Finance and Premier Leasing.

Of these, the first four became distressed largely due to irregularities associated with the widely discussed financial sector figure Prashanta Kumar (PK) Halder.

Aviva Finance, meanwhile, was owned by Chattogram-based Saiful Alam, also known as S Alam, who is known to be close to former prime minister Sheikh Hasina. PK Halder was also considered a close associate of S Alam.

Widespread irregularities and corruption took place at these institutions during the tenure of the now-ousted government of the Bangladesh Awami League. As a result, the institutions are currently unable to repay depositors’ funds and have been struggling for a prolonged period.

At a press conference on Monday, Bangladesh Bank governor Ahsan H Mansur said that the legal process to declare the nine financial institutions non-functional would be initiated.

He further said that following assessing the assets of these institutions, efforts are under way to repay individual depositors before Ramadan.

In light of the assurances provided by the government, individual depositors will receive the full amount of their deposits, the central bank governor added.

According to Bangladesh Bank sources, preparations are under way to formally declare the nine financial institutions non-functional and issue official notices to that effect in the near future. The volume of non-performing loans at these institutions has now exceeded 90 per cent.

The sources further said that before the institutions are shut down, Bangladesh Bank will assume full control by appointing administrators. Once the administrators take charge and the government releases the funds, the process of refunding individual depositors will begin.

Bangladesh Bank officials said they have learned that the government will release the funds in two phases. Accordingly, plans are being made to refund depositors in two instalments. As a result, even if the institutions are closed, depositors need not be concerned about the recovery of their money.

According to central bank data, the total volume of individual and institutional deposits at these nine institutions amounts to Tk 153.70 billion (15,370 crores). Of this, Tk 35.25 billion (3,525 crores) belongs to small individual depositors, while the remaining Tk 118.45 billion (11,845 crores) belongs to various banks and corporate entities.

The largest amount of individual deposits is stuck at Peoples Leasing, totalling Tk 14.05 billion (1,405 crores). This is followed by Aviva Finance with Tk 8.09 billion (809 crores), International Leasing with Tk 6.45 billion (645 crores), and Prime Finance with Tk 3.28 billion (328 crores) in deposits belonging to ordinary depositors.

However, officials concerned noted that these figures may change slightly once Bangladesh Bank takes control.

After individual depositors are repaid, liquidators will be appointed to wind up the nine financial institutions. The administrators will act as liquidators.

The liquidators will initiate the sale of the institutions’ assets, and Bangladesh Bank plans to gradually repay institutional depositors from the proceeds of these asset sales.

Subsequently, the formal liquidation of the nine institutions will be completed through the courts.

Initially, the central bank had moved to close 20 NBFIs. However, 11 of them submitted restructuring and recovery plans. Satisfied with these proposals, the central bank has granted them a specified period to turn their operations around.

As of the end of June last year, the volume of non-performing loans across 35 NBFIs had risen to Tk 275.41 billion (27,541 crores), accounting for 35.72 per cent of the sector’s total outstanding loans.

The repercussions of the irregularities committed across various financial institutions by the much-discussed figure in the financial sector, PK Halder, continue to weigh heavily on the entire industry.

Several institutions that were owned or managed by PK Halder are now in a particularly dire state. At the time these irregularities were committed, PK Halder was the managing director of Aviva Finance and Global Islami Bank, both controlled by S Alam, widely regarded as a close associate of former prime minister Sheikh Hasina. Both institutions are now on the list of those set to be closed.