MD pool for NBFIs: Six banks suggest 40 ex-bankers

Six banks have recommended 40 retired bankers for inclusion in a pool that the Bangladesh Bank is creating to select qualified managing directors for non-bank financial institutions (NBFIs), aiming to strengthen their management.

A senior official at the central bank, familiar with the initiative, said Sonali Bank, Rupali Bank, Agrani Bank, Janata Bank, Uttara Bank, and Pubali Bank have already submitted the names of their former bankers, and others are expected to follow suit.

Banks are now complying with a request made by the money market regulator as part of an initiative to elevate the leadership in the sector, which is reeling from an image crisis due to skyrocketing non-performing loans, he added.

According to Bangladesh Bank data, defaulted loans have surpassed 80% in several financial institutions.

This has resulted in many NBFIs struggling to find qualified managing directors to lead them, according to experts.

Currently, 12 NBFIs have been without regular managing directors or chief executive officers.

They are Bangladesh Industrial Finance Company (BIFC), Union Capital, FAS Finance, UAE-Bangladesh Investment Company, GSP Finance Company (Bangladesh), Aviva Finance, Bay Leasing, First Finance, Phoenix Finance, Strategic Finance, IPDC Finance, and Agrani SME Finance.

"We are dedicated to the overall development of financial institutions, and this effort will persist. A pool is being established to facilitate the swift appointment of managing directors at the institutions. We are optimistic that this initiative will yield positive outcomes," Md Mezbaul Haque, spokesperson for the central bank, told The Business Standard.

Bangladesh Bank data show that at the end of November 2023, defaulted loans in the NBFIs amounted to Tk21,989 crore, which is 30% of the total disbursed loans.

In November, only Tk80.79 crore was recovered from defaulted loans, which, according to the sector concerned, is considered very insignificant.

Nurul Amin, an independent director and chairman of FAS Finance who previously served as chairman of the Association of Bankers, Bangladesh, said, "Like other sectors, the amount of defaulted loans has increased in financial institutions as well.

"The main reason for this is that financial institutions engage in similar business activities as banks. Those who are unable to secure loans from banks often turn to financial institutions and subsequently default."

He suggested that NBFIs should have been associated with merchant banks, subsidiaries and the capital market. Their failure to do so has led to a culture of defaults. Moreover, the monitoring system of financial institutions is weak due to various reasons, including a lack of skilled manpower, hindering their ability to recover distributed loans.

When asked about irregularities and corruption in this sector, he said, "Since there are irregularities and corruption in our country, irregularities in financial institutions cannot be completely ruled out. However, compared to banks, the amount of irregularities here is smaller. It cannot be asserted that there is absolutely no irregularity; it may occur on the part of the board or the management."

According to central bank data, the default loan rate is 96.85% at BIFC, 52.82% at Bay Leasing, 59.39% at CVC Finance, 94.41% at First Finance, 89.56% at FAS Finance, 92.37% at GSP Finance, 57.79% at Hajj Finance, and 58.64% at IIDFC.

Among others, the default rate is 94.76% at International Leasing, 59.17% at Meridian Finance, 56.86% at National Finance, 99.02% at People's Leasing, 57.77% at Phoenix Finance, 66.74% at Premier Leasing, 43.12% at Union Capital, and 50.82% at Uttara Finance.