Central Bank Moves to Close Nine Failing Financial Firms

In a decisive move to stabilise the country’s financial sector, Bangladesh Bank has announced the closure of nine non-bank financial institutions (NBFIs) that have fallen into severe financial distress. The institutions, struggling with high levels of bad loans, capital shortfalls, and an inability to repay depositors, were identified as critically unstable following months of review.

The process began earlier this year when a committee formed by Bangladesh Bank examined the financial health of 35 licensed NBFIs, scrutinising their loan portfolios, liquidity, and capital adequacy. From this review, 20 institutions were flagged as troubled. After sending notices in May requesting explanations for their poor performance, the central bank received unsatisfactory responses from many firms, leading to the final decision to revoke the licenses of nine of them.

The institutions facing closure include Peoples Leasing and Financial Services, International Leasing and Financial Services, Aviva Finance, FAS Finance and Investment, Far East Finance and Investment, Bangladesh Industrial Finance Company, Premier Leasing and Finance, GSP Finance Company, and Prime Finance and Investment Limited. Officials confirmed that steps have been initiated to ensure an orderly liquidation, with protections in place for small depositors and employees, who will receive their entitled benefits.

The scale of the crisis is staggering. For example, FAS Finance has nearly 100% of its loans classified as non-performing, accumulating losses of Tk 1,719 crore, while Peoples Leasing faces 95% bad loans with losses exceeding Tk 4,600 crore. Even Aviva Finance, Premier Leasing, and GSP Finance are grappling with high percentages of defaulted loans, highlighting deep structural weaknesses in the sector.

The closure initiative will require around Tk 9,000 crore to facilitate the liquidation and ensure depositors are reimbursed. Bangladesh Bank has stressed that these measures are being taken under the Finance Company Act 2023, which empowers the central bank to cancel licenses if institutions operate against depositors’ interests, fail to maintain adequate capital, or are unable to settle liabilities.

Analysts say the move, though difficult, is necessary to restore confidence in the NBFI sector. With total deposits of nearly Tk 49,000 crore at stake, including over Tk 22,000 crore in troubled firms, the closures aim to protect depositors, stabilise the financial system, and prevent further contagion in the sector.

While the road ahead may be challenging for employees and investors linked to these institutions, financial experts view the central bank’s decisive action as a critical step toward restoring trust and resilience in Bangladesh’s financial landscape.