Troubled NBFIs among top gainers in stock market

Despite financial distress and liquidation risks facing several non-bank financial institutions (NBFIs), shares of some of these troubled companies still featured among the top gainers in yesterday’s stock market.

People’s Leasing and Financial Services rose the most, climbing 8.33 percent to Tk 1.30. Fareast Finance also gained 8.33 percent. Phoenix Finance increased by 5.4 percent, while First Finance rose by 4.87 percent. Four of the top five gainers were struggling NBFIs.

Stock investors of People’s Leasing have received no returns over the past decade, as the company has not paid any cash dividend since 2015 due to a large volume of non-performing loans. Investors in three other NBFIs are in a similar situation, according to Dhaka Stock Exchange sources.

Recently, the Bangladesh Bank (BB) decided to liquidate five NBFIs -- FAS Finance, Fareast Finance, Aviva Finance, People’s Leasing and International Leasing.

The central bank has also started a process to return deposits trapped in these institutions using government funds. Under this plan, individual depositors will initially receive up to Tk 10 lakh each.

These institutions have been severely affected by very high levels of defaulted loans, with most exceeding 90 percent. Four of them were previously linked to alleged financial fraud involving PK Halder, while Aviva Finance was associated with businessman S Alam.

Under the interim government, the regulator initially proposed liquidating nine NBFIs -- FAS Finance, Bangladesh Industrial Finance Company, Premier Leasing, Fareast Finance, GSP Finance, Prime Finance, Aviva Finance, People’s Leasing and International Leasing.

The decision followed an assessment by BB, which identified 20 NBFIs, including Phoenix Finance and First Finance, as being in critically weak financial health due to high defaulted loans and depleted capital. These firms were placed in the “red” category.

Together, the nine institutions accounted for 52 percent of total defaulted loans in the NBFI sector, which stood at Tk 25,089 crore at the end of last year. This reflects years of weak lending practices and capital erosion.

Seven of the nine institutions have an average net asset value of negative Tk 95 per share, meaning there is little chance of meeting obligations without state support. In simple terms, if assets are sold and debts are cleared, there is likely to be nothing, or very little, left for ordinary shareholders.

However, the recent rise in share prices has surprised market analysts. A senior brokerage official, speaking on condition of anonymity, said some investors are buying these shares based on rumours that they may still receive some returns from these institutions.

He added that there is no realistic prospect of shareholders getting anything back from these NBFIs.