A leasing company liquidation that tells a sorry tale

Published: 00:00, Jul 12,2019 | Updated: 23:29, Jul 11,2019

 
 

THE Bangladesh Bank began the process to liquidate non-banking financial institution People’s Leasing and Financial Services, which was set up in November 1997, on the finance ministry’s approval of June 26 that the central bank sought on May 21 after it had found the entity mired in various irregularities and management weaknesses during inspection that it launched on June 9, 2015 based on complaints. After the central bank had carried out the inspection, it took several steps, including the appointment of an administrator to the entity and a restructure of the board to improve its financial state and efforts for its merger with other entities, to save People’s Leasing but finally opted for the liquidation as the situation continued to deteriorate. People’s Leasing, as of 2018, collected about Tk 20 billion — Tk 7 billion from individuals and Tk 13 billion from different banks and non-bank financial institutions. Of the total disbursed loans of Tk 11.31 billion, Tk 7.48 billion in loans has been in default and directors of the company swindled Tk 5.7 billion of the defaulted amount in breach of the rules. Bangladesh Bank officials, however, on Wednesday assured the depositors of the return of their deposits.
Available data show that the entity’s total asset value, said to be about Tk 32.40 billion, is higher than the total liability, in deposits collected, of about Tk 20.36 billion. The central bank officials who have requested depositors, therefore, not be panicked have said that the Bangladesh Bank is working ‘relentlessly’ to protect the interest of depositors and shareholders of 32 more non-bank financial institutions, with their on-sight and off-sight supervision teams engaged in the process. But all this leaves a question to be answered: why has People’s Leasing and Financial Services rolled into the state of liquidation? The money that went out of the entity to become loans in default and the loans that the company directors took from the entity may not have happened overnight. The situation, thus, comes to question the efforts that the central bank has put in to stop irregularities and attend to management weaknesses of the entity. The failure of the entity at hand and its liquidation appear to be concomitant with what has happened, and is happening, in the banking sector, especially in view of a huge amount of loans in default, which is reported to have surged to Tk 1108.73 billion, as New Age reported in the middle of June, after the first quarter of 2019, showing that the measures that the government took to arrest the increase in defaulted loans have largely fallen flat, it is believed, because of an evident lack of stringency of the measures.
While the government’s lack of timely oversight could be a reason for the liquidation of People’s Leasing and Financial Services, it could be easily inferred that oversight on other non-bank financial institutions may have been in a similar state. With the banking sector having already been mired in irregularities and lack of governance, non-bank financial institutions coming to face a similar situation will have the whole of the financial sector at risk. The government must, therefore, attend to the problems and hold people and entities responsible for the plight at hand.

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