FROM PAGE B1

He said Union Capital has been relying on instalment recoveries to repay clients. “We are not getting fresh deposits. Our entire operation now depends on what we can recover from past investments.”

Admitting that the institution lacks full collateral coverage, he added, “Leasing companies once had a niche in lease financing. But now banks have entered that space with lower costs of funds. We had to borrow from banks to lend, which made it hard to compete.”

Shah Md Ahsan Habib, professor at the Bangladesh Institute of Bank Management (BIBM), said most NBFIs failed to assess the repayment ability of the borrowers, which should have been their primary consideration.

“They ignored the importance of primary security. Collateral is only secondary,” he said.

Habib added that NBFIs were set up to provide long-term finance, but most have failed in that mission. “We need a strong NBFI sector going forward. But the reality is that most of them are not performing well.”

He called for urgent support to save the sector, including reforms in the bond and securities markets.

In a recent interview with The Daily Star, BB Governor Ahsan H Mansur said that the central bank had assessed the situation and found that at least 15 NBFIs are no longer functioning.

“They have no capacity to run. Their NPLs may be as high as 80 percent or even 100 percent,” he said. “We are now moving towards a resolution, whether through liquidation or merger, something must be done.”

He said around Tk 9,000 crore would be needed to carry out such a resolution.

In the assessment, the BB marked 15 other NBFIs as relatively healthy. As of last year, they disbursed Tk 49,643 crore in loans, with only 7.31 percent classified as non-performing.

Their collateral coverage stood at nearly 59 percent, still below the ideal benchmark but better than their distressed peers.

Kanti Kumar Saha, vice-chairman of the Bangladesh Leasing and Finance Companies Association and CEO of Alliance Finance PLC, said they were dismayed to learn through the media that show-cause notices had been sent to the 20 NBFIs.

“That letter had a further negative impact on the sector,” he said. “The Bangladesh Bank could have simply asked these firms to submit recovery plans.”

He commented that although there had been ongoing discussions between the association and the central bank over the past five years, no meaningful steps were taken.

“Banks have been given generous liquidity support, and now there is a plan to merge weak banks and provide them with fresh capital, which is a positive move. Why not do the same for NBFIs?”

Saha argued that the problems of NBFIs are smaller in scale and could be resolved with small financial backing and intervention.

“These institutions are unable to return money to depositors. They need liquidity and support. We have been raising this alarm for the last three to four years. If action had been taken earlier, much of the current damage could have been prevented,” he added.