The central bank is set to give licence to a new non-bank financial institution (NBFI) -- a disconcerting move given that at least 10 of them are struggling to return funds to banks and customers upon maturity.
The proposed NBFI, to be called Strategic Finance and Investments, applied for licence on October 16 and the Bangladesh Bank was compelled to respond promptly as the sponsors have strong connection with the government, said a central bank official requesting anonymity due to sensitivity of the matter.
Subsequently on October 30, the central bank sought biographical reports on both the chairman and managing director of the proposed NBFI, as it looked to fast-track the licence awarding process.
As per the biographical report, Anjuman Ara Shahid, wife of Padma Bank Chairman Chowdhury Nafeez Sarafat, is the chairman of Strategic Finance and Investments.
She is also a sponsor-shareholder of Padma Bank, which was rechristened from Farmers Bank earlier in January as part of its effort to sweep the gross irregularities and loan scams under the carpet and get an image makeover.
Strategic Finance and Investments proposed Muhammad Ali Zaryab as its managing director. Zaryab is a deputy managing director of Padma Bank.
“This is quite an illogical move on part of the central bank given the ongoing fragile situation in the NBFI sector,” said Khondker Ibrahim Khaled, a former BB deputy governor.
Only four out of the 34 NBFIs are running their business smoothly, as per a central bank statement, he said.
“And in recent months, it has been seen that loans in NBFIs are fast turning sour for want of corporate governance.”
At the end of June, the total defaulted loans in NBFIs amounted to Tk 8,038 crore, up 47.21 percent from six months earlier, according to data from the central bank.
Then in July, the BB began the process of liquidating People Leasing and Financial Services as the NBFI failed to repay depositors’ money despite maturity of the funds.
Furthermore, on September 30 Rupali Bank alleged that 10 NBFIs have failed to pay back its funds amounting to Tk 933 crore, show BB documents.
The bank has repeatedly asked them to repay the money, but they were unable to. Subsequently, the state-run bank sought the central bank’s intervention.
But the BB is yet to take any step to help Rupali recover its fund.
“Rather, it is racing ahead towards the green light for the new NBFI,” said the central bank official.
Md Serajul Islam, spokesperson and an executive director of the central bank, told The Daily Star that the BB was yet to take any final decision on the new NBFI.
“We are reviewing its documents and applications,” he added.
Another central bank official on condition of anonymity, however, said the BB management is taking preparations to place the proposal at its next board meeting, scheduled for the first week of this month.
“The pressure from different corners is too much, so the management is considering giving the licence,” he added.
Ahsan H Mansur, executive director of the Policy Research Institute, said the financial sector regulator is doing the opposite of what the situation demands.
“The total number of NBFIs is too many given the country’s business volume,” he said, while advising the BB to liquidate the weak ones to restore corporate governance in the sector.
A new NBFI will not add any value to the financial sector at this moment, said Mansur, also a former economist of the International Monetary Fund.
Salehuddin Ahmed, a former governor of the central bank, echoed the same.
“There is a lack of depositor confidence in the NBFI sector -- many cannot wait to withdraw their funds upon maturity.”
So, the central bank should shun giving licence to a new NBFI in the interest of the financial sector, he added.
Besides, Padma Bank itself is a troubled lender that has yet to show any positive sign towards strengthening its financial health, Mansur said.
The bank, which was established in 2013, became a hotbed for financial irregularities in less than three years of operation. More than Tk 3,500 crore was siphoned out in that time, leaving the bank in financial pits and needing a bailout package from the government.
Padma had informed the central bank earlier in the year that those days are behind it now.
Yet, it is now struggling to returns fixed deposits to clients upon maturity.
And, at the end of September, its total defaulted loans swelled 10.83 percent year-on-year to Tk 3,403.49 crore, which is a staggering 62 percent of its total outstanding loans.
“The central bank should not allow any sponsors or directors of Padma Bank to run a new NBFI,” Mansur added.
The Daily Star failed to reach Anjuman Ara as she has listed her husband’s mobile phone number on the biographical report submitted to the central bank.
Despite repeated attempts, Nafeez also did not respond to a request for a comment.
But Zaryab, who would be taking the helm of the proposed NBFI, is sanguine about the new venture.
“Eight to ten NBFIs are in trouble, and we will take lessons from them while operating the new venture,” he said, adding that Strategic Finance and Investments would be rolling out new and diversified products to make its business vibrant.