Bangladesh Bank (BB) has already identified the vulnerable NBFIs and introduced a separate wing to monitor them closely
The downfall of People’s Leasing and Financial Services (PLFS) has put another six non-bank financial institutions (NBFIs) at risk as half its total deposits are owned by them.
A total of 15 institutions have deposits of Tk850 crore with the PLFS as of December 2017.
Of them, six NBFIs own Tk421 crore, according to the PLFS annual report-2017.
The NBFIS are Premier Leasing, FAS Finance, Fareast Finance and Investment, International Leasing, BIFFL and Reliance Finance.
Of the six, four were marked as financially weak by Bangladesh Bank (BB).
These are FAS Finance, Fareast Finance, International Leasing and Reliance Finance.
International Leasing has the highest Tk227 crore in deposits with the PLFS.
The institution is now in severe liquidity crisis and could not maintain the Cash Reserve Requirement (CRR) with Bangladesh Bank as per rules.
A financial institution is required to maintain 5 percent cash of its total liabilities with the central bank.
International Leasing has been facing financial penalty for last one year due to its failure to reserve the required cash with the BB.
Reliance Finance, which is also going through liquidity crisis, has Tk61.60 crore in deposit with the PLFS.
Bangladesh Commerce Bank, which is one of the worst banks in terms of financial health, has Tk140 crore in deposits with the People’s Leasing.
Considering fragile financial condition of the People’s Leasing, the central bank has decided to liquidate it.
Liquidation is the process of bringing a business to an end and distributing its assets to claimants. It usually occurs when a company is insolvent, meaning it cannot meet its payment obligation when due.
To this end, the BB has already got permission from the Finance Ministry.
Now the central bank has to take the final approval from High Court before liquidation.
If the HC court gives its seal of approval, a decision will be taken on how to settle liabilities, including return of depositors’ money.
Four state-owned banks – Sonali, Janata, Agrani and Rupali – have invested Tk 239 crore in the company.
The PLFSL started its journey in 1997. Its headquarters is located in Motijheel with two branch offices in Gulshan and Chittagong.
Of its total Tk1,131 crore outstanding loans, 66.14 percent has turned into non-performing loans.
Owing to deterioration of its financial health, the People's Leasing listed with the Stock Exchange could not give any dividend after 2014.
Some 67.84 percent of its total share is with general shareholders, 23.21 percent with sponsors and directors, 8.76 percent with institutions and 0.19 percent with foreign investors.