NBFI depositors face deep haircuts as four firms head for closure

Depositors of four troubled non-bank financial institutions (NBFIs) facing closure will receive only a portion of their funds, with larger depositors set to suffer substantial haircuts under a Bangladesh Bank repayment scheme.

The central bank has moved to wind up International Leasing and Financial Services, Aviva Finance, FAS Finance and Investment, and Far East Finance and Investment after years of irregularities, fraud and failure to repay depositors.

The decision was taken at a recent meeting chaired by Bangladesh Bank Governor Mostaqur Rahman, according to central bank officials.
Bangladesh Bank appointed administrators to the four institutions on August 9 as part of the process to bring their operations to an end.

The institutions have already fully refunded deposits of up to Tk10 lakh. Under the new scheme, individual depositors holding more than Tk50 lakh will receive a proportion of their deposits after a specified amount is deducted from the principal.

The repayment ceiling will depend on the size of the deposit.

Depositors with up to Tk1 crore will receive a maximum of Tk60 lakh, while those holding between Tk1 crore and Tk1.50 crore will receive up to Tk80 lakh.

Those with deposits ranging from Tk1.50 crore to Tk2 crore will receive a maximum of Tk1.05 crore. Depositors with more than Tk2 crore will receive no more than Tk1.25 crore under the proposed arrangement.

The move effectively means that larger depositors will bear significant losses as the central bank seeks to resolve four institutions whose financial conditions have deteriorated severely.

The four NBFIs together hold deposits of Tk12,483 crore. Aviva Finance accounts for the largest share at Tk5,368 crore, followed by International Leasing with Tk3,012 crore, FAS Finance and Investment with Tk1,246 crore and Far East Finance and Investment with Tk449 crore.

Their loan portfolios are also in critical condition. Bangladesh Bank data show that the default-loan ratios of the four institutions range from 93 per cent to nearly 100 per cent, leaving little room for recovery through normal lending operations.

The closure marks a major step in the central bank’s attempt to clean up the country’s troubled NBFI sector, where weak governance, loan irregularities, fraud and poor recovery have left depositors struggling to recover their money.

Bangladesh Bank had initially identified 20 NBFIs for liquidation and issued notices to them in May last year, asking why their licences should not be cancelled.

Following scrutiny and several stages of the regulatory process, the central bank initially decided to close nine institutions. The list was subsequently narrowed to four�"the institutions now being taken towards liquidation.

The latest move signals that Bangladesh Bank is increasingly turning to liquidation as an option for institutions that have become financially unviable and are unable to meet their obligations to depositors.

The central bank will next consider the fate of five other troubled NBFIs: People's Leasing and Financial Services, Bangladesh Industrial Finance Company, Premier Leasing and Finance, GSP Finance and Company, and Prime Finance and Investment.