Bank loans

Struggling NBFIs make Tk 1000cr bank loans sour

Twenty-five banks are suffering from a collective loan default of Tk 974.4 crore after several non-banking financial institutions (NBFIs) failed to repay the funds despite falling due, in another sign of weakness in the financial sector.

The fragility of the NBFI sector came to the fore three or four years ago after it emerged that some crooks had embezzled a huge sum of funds from companies in the name of loans. Today, NBFIs are failing to repay banks and individuals, despite the funds having come due.

The delinquent loan figure was revealed after Bangladesh Bank ordered banks to send data of disbursed loans to NBFI and deposits held with them.

The banks provided the BB with data from March last year.

Leading bankers say the NPL figure is much higher than the amount reported by the banks, as the BB had previously asked them not to classify the funds despite the NBFIs’ inability to repay on time.

The central bank’s decision was aimed at keeping public confidence in NBFIs intact.

Banks feel comfortable placing funds with NBFIs because the latter hold licenses from the central bank to conduct banking operations, such as disbursing loans to borrowers and raising funds from depositors.

Banks have funds of Tk 29,223 crore with NBFIs either in loans or deposits, according to BB data.

Prashanta Kumar Halder, also known as PK Halder, who lives in Canada after fleeing Bangladesh, is one of the people responsible for the current vulnerable situation in the NBFI sector.

Halder, former managing director of NRB Global Bank and Reliance Finance, and his associates defrauded about Tk 4,000 crore to Tk 5,000 crore from four NBFIs: International Leasing and Financial Services Ltd (ILFSL), FAS Finance & Investment, People’s Leasing and Financial Services Ltd (PLFSL) and Reliance Finance.

Md Abdus Salam Azad, Managing Director of Janata Bank, said he was in dire straits to realize the Tk 54 crore fund granted to First Finance, FAS Finance and PLFSL.

“We previously asked the central bank to take legal action against them, but we did not get approval. The BB even asked not to classify the fund.”

“How would the bank then recover the fund?

BASIC Bank has faced a delinquent loan of Tk 111.2 crore disbursed to FAS Finance, ILFSL and Bangladesh Industrial Finance Company (BIFC), a senior official at the public lender has said.

He said, however, that the amount of loan defaults had recently come down to some extent as the bank rescheduled some of the NPLs.

Dutch-Bangla Bank Ltd (DBBL) is also struggling to recover funds amounting to Tk 109.4 crore from several NBFIs.

Abul Kashem Md Shirin, the bank’s managing director, said the lender had previously filed complaints with the courts as part of its effort to recover the fund. The bank also rescheduled some of the delinquent loans.

The Bangladesh Development Bank has struggled to recover loans of Tk 97.7 crore from BIFC, ILFSL and PLFSL, chief executive Kazi Alamgir said.

He said total funds disbursed to NBFIs had now risen to Tk 111 crore including interest.

Mercantile Bank has been in a quagmire for a long time raising funds worth Tk 47.1 crore from several NBFIs including BIFC, ILFSL and FAS Finance.

Mati Ul Hasan, the bank’s additional managing director, says the lender regularized some of the loans by accepting a down payment below the required amount with prior approval from the central bank.

Mamoon Mahmood Shah, managing director of NRB Bank, said the lender tried to reschedule the NPLs by offering a lower down payment, but the effort was unsuccessful.

The bank faces a bad loan of Tk 45.2 crore disbursed to some NBFI.

According to Syed Mahbubur Rahman, managing director of Mutual Trust Bank, it is not possible to recover the funds overnight as the NBFIs are under pressure.

The bank is now making every effort to recover Tk 33.3 crore.

Md Shafiul Azam, managing director of Modhumoti Bank, suggests a concerted effort to recover delinquent loans. The bank has Tk 30 crore stuck with the NBFIs.

Contacted, Mominul Islam, President of Bangladesh Leasing and Finance Companies Association (BLFCA), a platform of NBFI managing directors, says that at least seven NBFIs are going through tough times.

The BB, Bangladesh Securities and Exchange Commission and BLFCA should explore ways to restore the image of the NBFI sector, he said.

“We recently submitted a set of proposals to the central bank to find a solution so that the beleaguered NBFIs can turn around.”

Deposits held by many people with NBFI were also blocked, said Islam, also managing director of IPDC Finance.

NPLs with the country’s 34 NBFIs stood at Tk 11,757 crore in September, up 17% from nine months ago.

Salehuddin Ahmed, former governor of the Bangladesh Bank, says there is little the central bank can do at the moment to recover the money as the health of the NBFIs is weak.

“Corruption has gripped them,” he said, urging the BB to take tough action to restore corporate governance.

The banks’ treasury departments also should have been cautious before the funds were disbursed, he said.

Muhammad Ali Zaryab, managing director of Fareast Finance, said the NBFI had already rescheduled its default loans held at 20 banks, except DBBL.

“We refunded Tk 28,000,000 to the banks between August and December last year.”

Subash Chandra Moulick, managing director of Premier Leasing, says his company repays in phases because it cannot repay in bulk.

AKM Ashfaqur Rahman Chowdhury, Acting Managing Director of BIFC, says they will be able to repay if they can recover defaulted loans from borrowers.

“We are trying to provide funds to banks in installments. We have taken legal action against the defaulters,” said Pritish Kumar Sarker, managing director of FAS Finance.