Financial Institutions Sector in Unprecedented Crisis

National Desk :    |    ০১:৩০ পিএম, ২০২৫-০১-০৭

Some non-bank financial institutions are now on the brink of collapse. They have been unable to repay depositors' money for a long time and are also unable to attract new deposits. A large portion of the loans disbursed in the past remain unpaid. As of last September, among the total 35 financial institutions in the country, 11 had 75-99% of their disbursed loans in default.

Among these, five institutions had more than 95% of their loans in default. Additionally, 22 institutions had more than half of their total loans in default. In total, nearly 36% of the financial sector's total loans have become non-performing. This grim situation has been revealed by a report from Bangladesh Bank.

Unbelievable Defaults:

Though it may sound unbelievable, out of FAS Finance’s loan of BDT 1,822 crore, a staggering BDT 1,820 crore is now in default, meaning that 99% of the institution’s loans have gone into default. Similarly, 98.06% of the BDT 890 crore loan of Far East Finance has become non-performing.

Out of BIFC's loan of BDT 773 crore, 97.27% is in default. People's Leasing, which has a loan of BDT 1,058 crore, has 97% of its loans in default. For International Leasing, out of BDT 4,135 crore in loans, 96.19%, or BDT 3,977 crore, is in default. Union Capital's loan of BDT 1,197 crore has 94.60% in default.

Aviva Finance, with a loan of BDT 2,928 crore, has 89.81% of its loans in default. Phoenix Finance’s default rate stands at 88.57%. First Finance has an 87.82% default, Prime Finance has 77.62%, and Premier Leasing has 75.20% of its loans in default.

Defaulted Loans Surpass 50%:

Among institutions where half or more than half of their loans are in default, IIDFC has 66.74% of its loans in default, Be Leasing 65.89%, National Finance 63.03%, CVC Finance 59.54%, GSP Finance 58.24%, Meridian Finance 57.69%, and Uttara Finance has 56.36% of its loans in default.

According to Bangladesh Bank’s data, there are about 13 financial institutions with comparatively lower levels of defaulted loans. As of last September, out of the total BDT 73,663 crore loans in the sector, BDT 26,163 crore had gone into default, which accounts for 35.52% of the total loans.

Rising Defaults Over Time:

In June, the defaulted loan amount stood at BDT 24,711 crore, and by the end of December the previous year, the defaulted loans were BDT 21,567 crore, which was 29.27% of the total loans disbursed until that point. This means that in the last three months, the defaulted loans have increased by BDT 1,425 crore, and in the past nine months, they increased by BDT 4,569 crore.

Challenges in Deposit Collection:

According to Bangladesh Bank’s review, many financial institutions are now unable to collect deposits even by offering high interest rates. In November, these institutions collected deposits at an average interest rate of 10.43%, while the average loan interest rate was 13.67%. Despite these rates, the institutions are not receiving sufficient deposits, which has resulted in limited new loan distribution. Most of these institutions are barely surviving. As of last September, the total amount of deposits in these institutions had fallen to BDT 47,838 crore, down from BDT 47,906 crore in June and BDT 47,491 crore in December of the previous year. Similarly, the loan balance also decreased to BDT 73,663 crore by last September, down from BDT 74,534 crore three months earlier and BDT 73,759 crore at the end of December.

Declining net loans and deposits:

Adding the interest on deposits and loans every quarter has led to a significant decrease in net loans and deposits.

Longstanding Disorder in the Sector:

Though there has been severe disorder in the financial institutions sector, it has been hidden for a long time. In most cases, these institutions have turned into means of sharing profits among parties involved in their ownership. In 2019, under the control of S. Alam, former MD Prashant Kumar Halder of Global Islami and Aviva Finance set up fake companies and took control of FAS Finance, BIFC, People's Leasing, and International Leasing. Over time, these institutions were unable to return depositors' money, leading Bangladesh Bank to initiate liquidation proceedings for institutions like People's Leasing and BIFC. However, these steps have not been effectively implemented.

Banking Sector Defaults Also on the Rise:

According to Bangladesh Bank’s data, the defaulted loans in the banking sector have also increased. In the first nine months of this year, defaulted loans in the banking sector nearly doubled. By September, the amount of defaulted loans had risen to BDT 2,84,977 crore, which accounts for almost 17% of the total loans. In December of the previous year, the defaulted loans were BDT 1,45,633 crore, or 9% of the total loans.

Officials related to the matter have stated that the increase in non-performing loans is partly due to loans taken under undue influence during the Awami League government’s tenure. The IMF has set a condition for reducing non-performing loans in banks, requiring that by December next year, non-performing loans should be brought down to 5% of total loans and to 10% in government-owned banks.