Bangladesh Bank is finally going to take strict steps to restructure the non-banking financial institutions (NBFI) sector, which has been reeling from long-standing irregularities, weak governance and complexities of defaulted loans.
The central bank’s board has given final approval to start the process of formally winding up nine NBFIs as per the Bank Resolution Ordinance-2025.
The decision was taken at a board meeting held yesterday chaired by Governor Ahsan H Mansur.
It is being seen as the regulator’s strictest and most historic step yet to restore stability to the sector.
The 9 financial institutions that are being closed and coming under the ambit of winding up are FAS Finance, Bangladesh Industrial Finance Company (BIFC), Premier Leasing, Fareast Finance, GSP Finance, Prime Finance, Aviva Finance, People’s Leasing and International Leasing.
These nine institutions are responsible for 52% of the defaulted loans of the financial institutions sector, which amounted to Tk25,890 crore at the end of last year.
In addition, the net asset value per share of eight institutions is negative Tk95, which makes it clear that repayment of liabilities is impossible without government intervention.
With the board approval, the central bank will now be able to start the work of closing the institutions, appointing liquidators, selling assets and distributing the proceeds among the creditors.
The biggest complaint against the Bangladesh Bank-listed institutions is the failure to return deposits. The scheme period of many customers has expired long ago, but they have been waiting for years.
Governor Ahsan H Mansur said: “The depositors will be refunded before the liquidation begins. The government has given verbal approval to return about Tk5,000 crore.”
The total stuck deposits of the nine institutions according to the central bank are Tk15,370 crore.
Of this, deposits of individual customers: Tk3,525 crore, and bank and corporate deposits Tk11,845 crore.
The highest deposits are stuck in People’s Leasing Tk1,405 crore, Aviva Finance Tk809 crore, International Leasing Tk645 crore, Prime Finance Tk328 crore, and FAS Finance Tk105 crore.
According to industry experts, weak governance, opaque financial statements, inflated assets, concealment of losses and long-standing irregularities are the reasons for the stagnation in the NBFI sector.
An official said that in a 10-month assessment, 20 institutions were identified in the ‘red category’, from which these 9 institutions have been selected for closure.
The other 11 weak institutions are in the list of CVC Finance, Bay Leasing, Islamic Finance, Meridian Finance, Hajj Finance, National Finance, IIDFC, Uttara Finance, Phoenix Finance, First Finance, and Union Capital.
Earlier, the central bank had decided to merge five weak Shariah-compliant banks to form a consolidated Islamic bank.
According to experts, both the merger and the liquidation decisions make it clear that mismanagement and irregularities will no longer be tolerated.
Why NPLs at Bangladesh’s NBFIs grew
NBFIs were designed to play a niche but essential role in the financial ecosystem: serving small and mid-sized businesses, leasing firms, and entrepreneurs who often found traditional banking processes too slow or restrictive. For a while, the model worked.
But as competition for deposits grew stronger, NBFIs increasingly offered higher interest rates to attract funds — and to sustain those payouts, many pivoted toward high-yield, high-risk lending. Over time this created portfolios heavily concentrated in a few large borrowers, with limited diversification to cushion against default shocks.
By the early 2010s, sector observers began warning of cracks: aggressive lending, poor collateral valuation, and instances of related-party loans that escaped proper scrutiny. But reporting standards were inconsistent, and regulatory enforcement lacked bite.
In effect, bad loans accumulated quietly. Instead of forcing write-downs, recapitalization, or management changes, many troubled institutions were allowed to roll over delinquent loans, inflating the appearance of solvency while problems intensified beneath the surface.
The absence of decisive intervention became most visible during the mid-2010s, when several NBFIs posted alarming jumps in classified loans but continued operating without meaningful restructuring.
Some boards were dominated by influential borrowers themselves, weakening internal checks and reducing incentives to enforce discipline. For ordinary depositors — many of them retirees and small savers chasing higher returns — the risks remained largely hidden.
The Covid-19 years accelerated the sector’s deterioration. Borrowers across transport, trading, and small manufacturing struggled to service debt amid lockdowns, supply-chain disruptions, and shrinking cash flows.
While banks received liquidity support and policy flexibility, NBFIs, already financially thin, had little resilience. Defaults rose sharply, and institutions with long-standing weaknesses found themselves unable to absorb fresh shocks.
Yet even then, intervention remained gradual. Regulatory forbearance, prolonged restructuring windows, and delayed governance reforms meant that distressed institutions were not forced into mergers, closures, or capital repair early enough. As a result, NPLs continued rising into the 2020s, pushing some NBFIs to the brink of operational paralysis. Liquidity shortages, delays in deposit repayment, and erosion of customer trust soon followed.
By the time authorities began taking firmer steps — including intensified supervision, special audits, and moves toward resolution of chronically weak entities — the sector’s problems had become entrenched.
