Graft brings People's Leasing to its knees

People's Leasing and Financial Services, an A-grade stock as recently as 2014, has been reduced to rubble by rampant corruption by its previous set of directors.

“It will take a long time to recover the huge loss,” said a senior executive of People's seeking to remain unnamed.

The non-bank financial institution's woes started after some of its previous directors took margin loans worth about Tk 328 crore under its capital market investment portfolio.

The margin loans were taken directly and indirectly in the name of their institutions, violating rules. The NBFI could not recover the sums.

A margin loan is a loan made by a broker to an investor for the purpose of buying securities. It is secured by the client's collateral.

“The irregularities had been going on since 2002. When the central bank identified the corruption, it was too late in the day,” the People's senior executive added.

When word got out in 2014 of the colossal corruption, big depositors ditched the NBFI, leaving it in a cash crunch.

Small depositors too have one foot out of the door even though the troubled NBFI is offering returns as high as 10 percent -- almost double that being offered by banks.

Banks and other NBFIs, which also borrow and lend among themselves, are also showing unwillingness to lend to the troubled company.

The institution is facing a fund shortage of Tk 40 crore to 50 crore every month, said the Bangladesh Bank in a report.

People's net loss widened 33.33 percent to Tk 112 crore in 2016 -- a sharp reversal in fortune as the NBFI had made a profit of about Tk 20 crore two years earlier.

“The condition of People's has become so bad in recent months that it cannot maintain the regulatory capital requirement,” said a senior BB official.

NBFIs must keep 2.5 percent of their total deposits with the central bank and 5 percent of their total liabilities in liquid form with themselves.

People's fell short on both the regulatory requirements by Tk 95.46 crore in May this year and the trend continued into July, according to the report.

At the end of last year, its deposits stood at Tk 1,600 crore, down from Tk 1,626 crore a year earlier.

Its provisioning shortfall is also on the rise: it stood at Tk 1,568 crore at the end of December last year. Of the provision shortfall, Tk 924 crore was accumulated loss.

The NBFI is concentrating on paying off previous liabilities by taking on high-cost deposits and as a result, its the lending activities have slowed down, said the central bank report.

At the end of last year, People's total loans stood at Tk 1,344 crore, down 11 percent year-on-year. Of the sum, 57.96 percent was defaults.

Until 2014, People's was amongst the “A” category of stocks, giving at least 10 percent dividends. The following year, it was downgraded to the “Z” category, after no dividend was offered.

People's share price remained low for the last one year. On Sunday, the last trading session, its shares traded at Tk 12.80 each.

The Daily Star attempted to contact Sami Huda, managing director of People's, but he did not answer his phone at the time of filing the report.