Non-bank financial institutions (NBFIs) in Bangladesh saw a slowdown in loan recovery as many firms struggled to repay debts amid an economic slowdown and persistent inflation.

Data from the Bangladesh Bank showed that NBFIs recovered Tk 6,715 crore in loans and advances in the October-December quarter of 2024, down 3.2 percent year-on-year.

However, it represented 1.99 percent growth in recoveries compared to the July-September quarter of the same year.

Kanti Kumar Saha, chief executive officer (CEO) of Alliance Finance PLC, formerly Lankan Alliance Finance Ltd, said the slowdown is an alarming signal despite the fact that businesses are facing many challenges.

"Despite that, recovery should be the number one priority along with austerity measures to keep them floating at this moment so that the sector can support the business growth when the momentum is restored."

Central bank data revealed that many borrowers from the trade and commerce, construction, and industrial sectors failed to repay loans in the fourth quarter of last year compared to the same period a year earlier.

The industrial sector accounted for 40.48 percent of total recoveries, followed by trade and commerce and consumer finance, according to the data.

The central bank also reported that deposits at NBFIs stood at Tk 48,025 crore at the end of December 2024, marking a year-on-year increase of just 1 percent -- the lowest growth in three years.

The total amount of loans and advances grew by 3 percent year-on-year to Tk 76,076 crore in the October-December period of last year.

Compared to the July-September quarter, NBFIs recorded a 2.61 percent increase in loans and advances in the fourth quarter.

Saha said deposit growth has been lower due to waning demand for loans in the last quarter of 2024 against the same period of the previous year.

"The high level of inflation and, as a consequence, increased interest rates have made loans costlier. As a whole, private sector credit growth has witnessed a continuous fall during the period."

Saha added that non-performing loans had been increasing in recent quarters, attributing it mostly to legacy problems due to governance issues in the past, and said it was impacting the profitability of NBFIs significantly.

"This is the time for budget planning for next fiscal year and a temporary tax cut can boost the confidence as well as the image of the sector as a whole."

Mohammad Rafiqul Islam, managing director of United Finance PLC, said a crisis of confidence among depositors has emerged following irregularities in some financial institutions in the past.

"But it is good that everything is recovering. Now, what is needed is to restore confidence in people. We should not do anything that hurts confidence."