Staff Correspondent:

Bangladesh Bank has initiated proceedings to cancel the licences of 20 non-bank financial institutions (NBFIs) that have long been mired in crisis due to high levels of defaulted loans and their inability to return customer deposits.

In official notices sent to the institutions, the central bank has asked them to explain—within 15 days—why their licences should not be revoked.

The move marks a major push by the authorities to clean up the sector, which has seen years of irregularities, mismanagement, and erosion of public trust.

Officials at Bangladesh Bank told reporters that necessary actions, including possible mergers or liquidation, would follow depending on the responses received.

The 20 NBFIs identified include: CVC Finance, Bay Leasing, Islamic Finance, Meridian Finance, GSP Finance, Hajj Finance, National Finance, IIDFC, Premier Leasing, Prime Finance, Uttara Finance, Aviva Finance, Phoenix Finance, People’s Leasing, First Finance, Union Capital, International Leasing, BIFC, Fareast Finance and FAS Finance.

Several of these institutions were linked to the disgraced financier Proshanta Kumar (PK) Halder, who is accused of orchestrating one of the country’s largest financial scams. At the time of the alleged misconduct, Halder served as managing director of a bank under the control of Mohammed Saiful Alam (S Alam), a businessman known to be close to former Prime Minister Sheikh Hasina.

After Halder’s activities led to the collapse of several institutions, S Alam’s group reportedly extended similar influence over Shariah-based banks, compounding the financial sector’s fragility.

Bangladesh has a total of 35 NBFIs, of which 20 are now deemed to be in critical condition. As of December 2024, these institutions held deposits worth BDT 22,127 crore—of which BDT 16,367 crore came from institutions and BDT 5,760 crore from individuals. Against this, total loans disbursed stood at BDT 25,808 crore, with an alarming 83% classified as non-performing, amounting to BDT 21,462 crore.

The total collateral held against these loans is only BDT 6,899 crore, indicating that many depositors may not recover their funds in full. The accumulated losses of these 20 firms have reached BDT 23,448 crore.

According to a central bank report, the inability of these entities to repay depositors is affecting public confidence in even the well-performing financial institutions. It also warned that their continued operation poses systemic risks to the sector.

The 20 flagged institutions incur annual staff salaries of BDT 172 crore, including BDT 12 crore in pay for managing directors, and spend another BDT 206 crore overall in operational expenses. However, they generate virtually no actual income from interest. The central bank says legal restructuring or mergers are now necessary under prevailing laws.

In its letters to the firms, Bangladesh Bank cited multiple reasons for potential licence cancellation, including inadequate assets to cover depositor liabilities, excessive non-performing loans, failure to maintain minimum capital requirements, and persistent losses. The institutions have been asked to clarify their current positions and submit plans.

Responding to the notice, Kazi Alamgir, MD of International Leasing, told reporters: “We have received the letter and will soon submit our action plan to the Bangladesh Bank. We’re working on loan recovery to repay depositors.”

As of December 2024, the total loan portfolio across all NBFIs stood at BDT 75,450 crore, with BDT 25,089 crore in defaults—representing 33.25% of total loans. This was a slight improvement from September 2024, when defaults reached 35.52%. In December 2023, defaults were at 29.27%.

Crucially, the poor state of the 20 troubled firms is skewing the national average. The remaining 15 NBFIs have an average default rate below 8%, a performance better than many commercial banks.

Bangladesh Bank spokesperson Arif Hossain Khan said the central bank is closely monitoring the sector to prevent further deterioration.