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NBFI classified loans soar alarmingly

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Classified loans from non-banking financial institutions in the country have risen alarmingly to Tk 13,016 crore at the end of last calendar year, thanks to irrational loan disbursements and lender irregularities amid low monitoring by watchdog Bangladesh Bank.

Out of 34 financial institutions, twelve – Aviva finance, CVC Finance, Fareast Finance and Investment, First Finance, Industrial and Infrastructure Development Finance, Infrastructure Development, MIDAS Financing, National Finance, Phoenix Finance and Investments, Premier Leasing, Union Capital, Uttara Finance – saw up to 300% increase in graded loans in 2021, according to Bangladesh Bank’s quarterly report.

In addition, others also saw slight increases in these loans in the Covid-hit year, increasing total loans classified by Tk 2,957 crore or 29.41% year-on-year.

As of December 2021, the total disbursement of the 34 institutions stood at Tk 67,354 crore, while about one-fifth or 19.33% of the disbursements were classified. In the previous calendar year of 2020, disbursement was Tk 10,053 crore and loans classified were 15.02%.

“A huge sum of money was taken in favor of different names of several non-banking financial institutions, but the loans were not repaid. As a result, many lenders are now struggling to secure their customers’ deposits” said ABM Mirza Azizul Islam, a former adviser to an interim government.

“The irregularities took place thanks to weak central bank oversight,” he told The Business Standard.

Asked about the alarming increase in graded loans from non-banking financial institutions, a senior Bangladesh Bank official, on condition of anonymity, told TBS that many lenders have been hiding data on non-performing loans for a long time.

“During recent central bank inspections, some cases like the leasing of people came to light, which contributed to the sharp increase in graded loans,” he said, adding that many Borrowers were now unable to repay their loans as they were hit hard by the pandemic, which was another reason.

However, classified loans decreased from Tk 26 crore in the second quarter of 2021 to Tk 10,328 crore from Tk 10,354 crore in the first quarter. It jumped again by Tk 1,429 crore in the third quarter and Tk 1,259 crore in the last quarter of the calendar year.

Of the total classified loans of 13,016 crore, six institutions – Bangladesh Industrial Finance, Fareast Finance and Investment, FAS Finance and Investment, First Finance, International Leasing and Financial Services, Premier Leasing and Finance – held Tk 7,916 crore or 60, 81% of total non-performing loans, as of December 2021, according to Bangladesh Bank data.

Irregularities in the non-banking financial institutions sector emerged one after another, especially after the fall of People’s Leasing in 2019. Bangladesh Bank later flagged several troubled institutions – including International Leasing and Financial Services, and Bangladesh Industrial Finance – red and placed them under special surveillance.

Public investors are feeling the pinch

At the end of 2020, classified loans of listed company Uttara Finance accounted for only Tk 270 crore, or 9% of its total disbursement, which rose to Tk 998 crore in December 2021. This was 41.68% of the total disbursement. disbursement then.

The company did not share any dividends with its equity investors in 2020 and 2021. It last provided its revenue data for the July-September 2019 quarter, showing a loss of Tk 149 crore.

Currently, he owns a total of 13.14 crore shares in the capital market. Each share traded at 39.50 Tk on April 2.

“Uttara Finance showed lower classified loans by hiding data, and Bangladesh Bank inspection exposed the real figure, leading to sudden increase in classified loans,” the central bank official said.

Another struggling listed company, Farest Finance, saw its graded loans increase to 89.95% of total disbursement in 2021, from 51.9% in 2020.

Although a share of the company was issued at Tk 10 during the IPO, it traded at Tk 5.8 on March 31. Also, the company did not pay any dividends after 2016.

First Finance also faces a similar situation. One share of the company traded at Tk 5.70 on the same day. It paid 10% dividends in 2013, 5% in 2014 and 2% in 2019, but did not share dividends with public investors thereafter.

First Finance’s classified loans rose to Tk 741 crore last year from Tk 262 crore a year earlier. Now around 82% of the company’s loans are non-performing, up from 30% in 2020.

The company’s board recently fired its managing director (responsible) Tuhin Reza for allegedly committing gross irregularities.

Several other listed non-bank financial institutions are also depriving their equity investors of dividends, mainly due to their poor performance with huge amounts of classified loans.