Rising losses push non-bank lenders to edge

The non-bank financial institutions (NBFIs) are confronting one of their most challenging periods in recent memory. This newspaper reported on Tuesday that rising losses, surging non-performing loans, and dwindling public confidence are threatening the sector’s stability, underscoring the urgent need for structural reform.

Of the 35 licensed NBFIs, 23 are listed on the stock market.

Half-yearly financial statements from 16 institutions reveal a stark divide: ten reported combined losses of Tk 1,790 crore—a 17 per cent increase from last year—while six recorded profits of Tk 1,780 crore, barely offsetting the overall deficit.

Phoenix Finance and Investments Limited posted the heaviest loss at Tk 4,680 crore, followed by People’s Leasing and FAS Finance Limited. Meanwhile, IDLC Finance and DBH Finance maintained profitability, reflecting the benefits of sound governance, diversified portfolios, and stricter risk assessment.

A surge in non-performing assets compounds the sector’s woes. Bangladesh Bank data show defaulted loans now stand at Tk 27,189 crore, rising by Tk 2,100 crore in just three months. Years of poor management, weak internal controls, and inadequate compliance with loan classification and risk management standards have fuelled the crisis, undermining investor trust.

Structural vulnerabilities, particularly the heavy reliance on short-term deposits to fund long-term loans, exacerbate the sector’s fragility.

Experts, including Professor Shah Md Ahsan Habib of the Bangladesh Institute of Bank Management, stress the need to deepen capital markets, allow NBFIs to issue long-term debt, and reduce dependency on deposit funding. Stronger governance, transparent risk management, and stricter regulatory enforcement are also essential to restore public confidence.

Bangladesh Bank has extended liquidity support to 20 financially weak institutions and is considering restructuring and mergers. While necessary, such interventions provide only temporary relief. Long-term sustainability will require systemic reforms that rebuild trust, stabilise operations, and ensure compliance.

Though NBFIs represent just 5–6 per cent of the financial system, their health is vital for SMEs and underserved sectors. A resilient NBFI sector can complement banks, support financial inclusion, and contribute to broader economic growth. Policymakers and regulators must act decisively to implement reforms that address structural flaws and strengthen oversight.

The NBFI crisis is a stark reminder that without governance, transparency, and long-term planning, even critical financial institutions remain vulnerable. Bold reform today is essential to secure the sector’s future and restore confidence in Bangladesh’s broader financial ecosystem.