Because of the serious liquidity crunch, six more non-bank financial institutions (NBFIs) are now in a vulnerable state after Peoples Leasing and Finance Services (PLFS) and Bangladesh Industrial Finance (BIFC), which are bracing for liquidation.
Bangladesh Bank (BB) has already identified the vulnerable NBFIs and introduced a separate wing to monitor them closely.
The identified vulnerable NBFIs are - First Finance, Fareast Finance and Investment, Prime Finance and Investment, Reliance Finance, International Leasing and Financial Services and IIDFC.
The government has already given its permission to liquidate the PLFS following the Bangladesh Bank’s recommendation as it could not pay back depositors’ money. Another liquidation proposal of the BIFC has been pending for last one year for approval from the Finance Ministry.
Other two NBFIs – International Leasing and First Finance – could not return money to their depositors.
Currently, 34 NBFIs are operating in the market. Of them, 22 are listed with the stock market.
The total portfolio size of NBFIs was Tk 66,244 crore as of December 2018. Of which, the defaulted amount was Tk 5,439 crore or 8.21 percent, according to Bangladesh Bank data.
Of the 34 NBFIs, some 29 collect short-term deposits.
The NBFIs which collect deposits are required to maintain 5 percent CRR (Cash Reserve Requirement) with the BB as per the NBFI rules. But six NBFIs could not comply with the rules on a regular basis due to liquidity crisis.
The six firms are -- BIFC, Peoples Leasing and Financial Services, First Finance, FAS Finance and Investment, International Leasing and Financial Services and Reliance Finance, according to an assessment report of the central bank.
The BB is supposed to impose one percent in fine for their failure to maintain the CRR. Instead, it has been imposing a token fine, considering their financial health. But their financial position is so weaker that the central bank could not even recover the token fine.
The BB identified eight NBFIs which are at high risk based on their CAMELS (Capital, Asset, Management, Earning, Liquidity, and Sensitivity to the market risk) rating. CAMELS ratings are done to evaluate soundness of financial institutions.
The whole NBFI industry is being affected due to financial crisis of these eight institutions, opined the central bank in its assessment report.
All eight NBFIs fell in crisis not because of business losses but for corruptions, said industry insiders.
The BB received complaints from depositors against First Finance for not returning their money even after maturity of their deposits.
The net loss of the firm stood at Tk50 crore at the end of last year. The default loan of the NBFI was 41.45 percent as of December, 2018.
The company has remained at red zone for several years in the BB’s stress testing. And it was identified as a trouble-hit NBFI by the central bank.
In the stock market, the company’s each share price has remained below face value since last year.
After being listed with the DSE in 2003, the company has been staying in ‘Z’ category for not declaring dividend for shareholders.
Fareast Finance and Investment
The company made a net profit of Tk94 crore in 2017. In spite of recovering from losses and making a profit of Tk14 crore in 2018, its accumulated loss was Tk83 crore.
The default loan of the firm was 15 percent as of December last year, according to the BB data.
It has continuously been holding its position in the red zone in the BB’s stress testing.
The company was identified as a weak NBFI in the BB’s early warning report. The company was listed with the DSE in 2013. Its each share has remained undervalued for last one and half years.
Prime Finance and Investment
The company incurred a loss of Tk16.57 crore in 2017 and the accumulated loss stood at Tk197 crore last year.
The default loan was 18 percent in December last year. The firm was marked as a trouble-hit in the BB’s early warning report. At the DSE, each share price has been hovering around the face value of Tk10 for last one year.
A special investigation, conducted by the central bank in June last year, found financial statement manipulation by showing Tk118 crore inflated interest calculated against default loan.
Moreover, the company provided loan irregularities of Tk330 crore, which was classifiable but the company kept the loan account regular.
The company was marked as a weak financial institution in the early warning report and it has been in the red zone in the stress testing report.
International Leasing and Financial Services
The company could not maintain the required CRR with the central bank as per rules due to severe liquidity crisis.
The company faces every day the CRR shortfall of Tk31 crore, according to the BB assessment report.
The company collected deposits of Tk493 crore from different banks and financial institutions, putting them at risk.
The BB identified the company as a weak financial institution in its early warning report.
The share price of the company has remained downward from the beginning of this year and each share was traded between Tk10 to Tk12 in the last several months, according to the DSE.
The IIDFC, a non-listed financial institution, continued to stay in the red zone in the central bank’s stress testing. It was marked as a weak financial institution in the central bank’s early warning report.