First case of NBFI liquidation

The Daily Star  July 13, 2019

First case of NBFI liquidation

It should serve as a wakeup call

We thank the Bangladesh Bank (BB) for its assurance that the depositors of People’s Leasing and Financial Services (PLFS) will get their money back as BB gears up to liquidate PLFS, a non-bank financial institution (NBFI); 15 banks and other NBFIs stand to lose more than Tk 850 crore. That, however, is merely the tip of the iceberg. When we take into account the manner in which liquidation works, debts of external creditors, i.e. outside parties which are owed money by People’s Leasing, will be settled first. Whatever remains will then be cleared step by step. First will come the banks and other NBFIs followed by preferential debenture holders, etc.

While BB assures us that no depositor will lose money, the financials of the company state otherwise. In the first nine months of 2018, the institution’s operating expenditure stood at Tk 22.48 crore against an operating income of Tk 2.05 crore. The NBFI has been in trouble for some time now. Indeed, the central bank had been aware of the problems since 2014 when some of the directors siphoned off around Tk 1,000 crore and the institution failed to pay any dividend after 2014.

The question that comes to mind is: why weren’t steps taken to take over the stewardship of the institution then? Why were these directors not brought to face the law? Merely removing them from the board was hardly a decisive step. Would it not have made more sense to launch criminal cases against them and trace the stolen money?

Today, the retail investors are looking at a bleak future because they are at the bottom of the food chain, as they hold 68 percent of the stock. If the company goes into liquidation (as per Financial Institutions’ Act, 1993), it is estimated that general shareholders and institutional investors stand to lose nearly Tk 220 crore. Passing on the buck when it comes to taking responsibility for failure to regulate financial institutions has become the norm in our country. The contagion that has engulfed the banking sector now threatens NBFIs. Depositors need concrete action and not mere assurances from the regulator so that such incidents can be averted in the future.

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