The Bangladesh Bank board has awarded its initial consent to a new non-bank financial institution, Strategic Finance and Investments, on political consideration despite the fact that the country’s NBFI sector is in turmoil amid massive scams and irregularities.
Instead of putting efforts to establish discipline in the sector, the BB is going to bring a new NBFI to the market where more than 10 of the 34 NBFIs are struggling to survive.
Due to a sorry state of affairs, People’s Leasing and Financial Services is facing liquidation, leaving around 7,500 depositors of the entity in a devastating state of money loss.
Of the NBFIs operating in the country, only four are in a sound financial state, according to a BB assessment.
The initial approval to Strategic Finance and Investments also raises question whether the central bank has been working independently or not.
BB officials said that the sponsors of the proposed NBFI had strong links with the government high ups and there was political pressure for approving the company.
The BB board with its governor Fazle Kabir in the chair on Sunday decided to issue letter of intent to Strategic Finance and Investments, BB executive director and spokesperson Md Serajul Islam told New Age.
He said that the scope for attaining foreign investments was the major consideration behind the decision.
The maximum portion of investments in the NBFI would come from abroad, Serajul said.
‘A few of the NBFI sponsors are not performing well but it does not mean none of the sponsors will perform well,’ he said.
Besides, the BB would issue its final approval to the entity after adequate verification of the sponsors along with fulfilment of all other regulatory requirements including raising its paid-up capital to Tk 100 crore, the BB official said.
He also mentioned that one individual and six entities were sponsors of the NBFI.
Anjuman Ara Shahid, wife of Padma Bank chairman Chowdhury Nafeez Sarafat, is the chairman of Strategic Finance and Investments.
Anjuman is one of the sponsor-shareholders of Padma Bank, earlier known as Farmers Bank that was renamed following massive scams and irregularities.
Muhammad Ali Zaryab, deputy managing director of Padma Bank, has been proposed as the managing director of Strategic Finance and Investments.
Former Bangladesh Bank deputy governor Khondkar Ibrahim Khaled said that there was no need to issue licence to a new NBFI.
‘It’s not a right decision of the central bank amid the existing situation including the liquidation process of People’s Leasing and Financial Services, and the ailing state of another 10 NBFIs,’ Ibrahim Khaled said.
The BB should have strengthened its oversight over those entities instead of issuing new licence, he said.
Mentioning that there was enough NBFIs in the country and the financial state of most of them was not good, former World Bank lead economist Zahid Hussain said, ‘If the central bank is convinced enough that the sponsors have exceptional financial or managerial capacity to bring some dramatic changes in the sector, it can consider giving licence.’
Otherwise, there could be no logic except adding another NBFI to the fold, he said.
Ibrahim Khaled also said it was doubtful whether the central bank was enjoying enough independence.
As per the BB statement, the amount of defaulted loans in the NBFI sector, excluding the NPL in PLFS, increased to Tk 7,320 crore at the end of June, 2019 against the outstanding loans of Tk 66,545 crore.
However, the defaulted loans figure would increase to Tk 8,068 crore if Tk 748 crore in NPL in PLFS was included. The NPL figure represents 12.12 per cent of the sector’s outstanding loans.
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