BB’s report show 6 listed firms in crisis
Kamruzzaman Bablu :
Many financial institutions in the country are grappling with a significant challenge as defaulters are failing to repay their loans, thereby burdening these institutions.
According to a report from Bangladesh Bank, six financial institutions listed in the capital market have failed to set aside provisions for bad loans, leaving ordinary depositors and investors vulnerable and weakening these firms financially over time.
The report highlights a concerning trend where a majority of non-banking financial institutions (NBFI) are defaulting on payments past their due dates. Specifically, as of last September, seven institutions in the capital market have been unable to secure provisions.
These institutions include Bay Leasing and Investment, FAS Finance and Investment, First Finance Limited, GSP Finance Limited, Phoenix Finance, and Premier Leasing.
Insiders within the sector allege that the escalating crisis is a direct result of weak institutional governance and a shaky foundation in the financial sector.
The shortfall in provisions poses a serious threat to financial institutions, particularly non-banking financial institutions, signaling their poor financial health.
A provision deficit occurs when the amount of financial liabilities outweighs the cash liquidity of firms. If defaulted loans continue to rise and income decreases correspondingly, institutions may find themselves in a provision deficit, indicating a dire financial situation.
According to Bangladesh Bank regulations, financial institutions are required to set aside provisions ranging from 0.50 percent to 5 percent of their operating profit against regular or unclassified loans.
Additionally, provisions of 20 percent and 50 percent are mandatory against bad classified loans and doubtful classified loans, respectively. Furthermore, 100 percent of the amount must be provisioned against bad loans.
Among the firms, FAS Finance and Investments stand out as the top financial institution failing to maintain provisions, indicating a fragile financial situation characterized by lagging deposits and loan collections. As of the end of the September quarter of this fiscal year, the company’s defaulted loans totaled Tk 1,645 crore.
The company was required to provision around Tk 1,000 crore against defaults and other loans. However, only Tk 353 crore remains, resulting in a provision deficit of Tk 646 crore 67 lakh. Following closely, GSP Finance holds the second-highest provision deficit at Tk 314 crore 55 lakh by the end of the September quarter.
Other institutions facing provision deficits include Premier Leasing (Tk 147 crore), Fast Finance (Tk 134 crore), Bay Leasing (Tk 93 crore), and Phoenix Finance (Tk 21 crore), respectively.
Dr. Saleh Uddin Ahmed, former governor of Bangladesh Bank, expressed concerns over the lack of proper monitoring by Bangladesh Bank, particularly in the banking sector.
He highlighted the influence of certain influential figures in exploiting these institutions. He also stressed the necessity for stronger and increased monitoring and inspection of financial institutions to address this critical situation.
