Default loans in six non-bank financial institutions (NBFIs) more than doubled in just three months until March this year following the withdrawal of loan repayment exemption by the Bangladesh Bank.
The organisations are MIDAS Financing Limited, National Finance Ltd, CVC Finance Limited, Hajj Finance Company Limited, Uttara Finance and Investments Limited and Premier Leasing and Finance Limited. By the end of March, the total default loans of the NBFIs amounted to Tk1,649 crore.
Many financial institutions have been sinking due to corruption by directors and mismanagement. Among 34 NBFIs, 16 are entangled in huge default loans.
According to the Bangladesh Bank, NBFIs recorded Tk66,962 crore disbursed loans at the end of March, with 15.5% of it being classified loans.
Borrowers of banks and other financial institutions were given loan repayment deferral amid countrywide lockdowns imposed to check the transmission of the coronavirus last year.
The repayment deferral was in place for clients of NBFIs from January to December of that year, meaning they were not deemed as defaulters for not paying installments of short and long-term loans during the time.
After the authority discontinued the facility from January this year, the amount in default loans began climbing up. The central bank then reinstated the facility, with mounting pressure from businessmen through a circular issued on 1 September.
According to the circular, if a client pays off half of the total installments of this year against a loan, it will not be classified.
Mustafizur Rahman, managing director and chief executive of MIDAS Financing, said the amount of default loans had jumped because of the sudden lifting of the repayment benefit.
Even those who were able to make payments did not repay loans when the special exemption was in effect, he said. However, the amount of default loans of MIDAS Financing has declined from what it was in March.
"Moreover, the Bangladesh Bank turned down a few applications for deferral benefits last year. That is why default loans went up. We were almost back to our previous position in June."
Due to the surge in classified credits, the company had to keep aside Tk53 crore for loan provisioning in the first quarter of this year, which was 2,370% higher than what was in the corresponding period last year.
MIDAS Financing, however, declared 2.5% cash and 2.5% stock dividends to shareholders for last year against its earning per share of Tk0.83.
On default loans multiplied by four times, Russel Miah, associate of CVC Finance Limited, said that because of the benefit, Credit Information Bureau reports did not show the change of the status of a borrower for their failure to make payments against a loan until December.
And they have not paid off the dues after the authority put an end to the exemption. "Since We did not have permission from the Bangladesh Bank, we did not provide the deferral facility. But default loans have been on a downward trend since June. We are going to be in a better position than before."