One-third of non-bank financial institutions (NBFIs) account for more than 73% of bad loans

According to Bangladesh Bank data, twelve of the 35 non-bank financial institutions (NBFIs) hold nearly 73.5% of the sector’s bad loans, indicating severe financial strain within these entities. By June 2023, total bad loans in the sector reached a record Tk 24,711.28 crore, with Tk 18,164.5 crore concentrated in just these twelve NBFIs: Aviva Finance, FAS Finance, International Leasing, People's Leasing, Phoenix Finance, Premier Leasing, Union Capital, Bangladesh Industrial Finance Company Limited (BIFC), Fareast Finance, First Finance, Infrastructure Development Company Limited (Idcol), and Uttara Finance.

Industry insiders reveal that six of these institutions—FAS Finance, International Leasing, People's Leasing, Union Capital, BIFC, and Fareast Finance—are in especially poor shape, with bad loans comprising over 90% of their disbursed loans. Anis A. Khan, former chairman of the Association of Bankers, Bangladesh (ABB), described a troubling “unholy nexus” impacting certain banks and NBFIs, posing a “serious threat” to the financial system's stability. Khan highlighted how some NBFIs, including People's Leasing, Phoenix Finance, and International Leasing, have suffered due to infiltration by unscrupulous investors exploiting their roles as directors or chairpersons for personal gain, which he likened to "outright theft" leading to near-collapse.

Khan attributes rising non-performing loans (NPLs) in the NBFI sector to various factors, including financial scams and operational irregularities. Citing a Bangladesh Bank investigation, he noted that former NRB Global Bank Managing Director PK Halder alone embezzled at least Tk 3,500 crore from four NBFIs—People’s Leasing, International Leasing, FAS Finance, and BIFC—contributing to their dire condition with over 90% of loans defaulted. By June 2023, total outstanding loans in the NBFI sector amounted to Tk 74,533.74 crore, with defaulted loans accounting for 33.15%, though industry insiders suspect the real figure may be even higher, often rising after central bank inspections.

Despite this, some NBFIs, including IDLC, Delta Brac Housing, IPDC Finance, and Lanka Bangla, remain financially stable. As a solution, Khan recommended forming a specialized taskforce with experts to address the sector’s challenges. He also advocated for mergers and acquisitions, arguing that Bangladesh does not need 35 NBFIs, but rather stronger governance and tighter regulatory oversight.

Md Golam Sarwar Bhuiyan, chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA), noted that the financial distress of these NBFIs has been a longstanding issue, worsened by interest payments on longstanding bad loans. He indicated that recent efforts are underway to restore stability and governance within the sector, adding that Bangladesh Bank's supervision has sometimes been lacking, contributing to repeated scams and loan irregularities. The BLFCA has met with the central bank governor to discuss these issues and recommended establishing a dedicated commission to improve governance and manage NPLs effectively.