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Only nine of Bangladesh's 35 non-bank financial institutions (NBFIs) remained sound until December 2024, reflecting a sharp fall in their resilience over the past four years.
The Bangladesh Bank's stress test results show while 18 out of 34 NBFIs, also called finance companies, were in sound condition in 2020, the figure dropped to just nine out of 35 by December 2024.
This deterioration, alongside a rise in weak performers, underscores growing vulnerabilities in the sector and throws its overall resilience into question.
Fourteen of the 23 listed NBFIs - most of them loss-making entities - traded far below their face value of Tk 10 on the Dhaka Stock Exchange (DSE) recently.
Stakeholders blame a mix of weak governance, lax regulation, and past scams for the sharp deterioration in NBFIs' health.
They point out that years of unchecked irregularities and politically connected borrowers defaulting on loans have saddled institutions with massive non-performing loans.
According to them, this not only eroded depositors' trust but also triggered an exodus of funds, causing many NBFIs to face severe liquidity stress.
Stakeholders further note that unlike banks, which often receive bailout packages, finance companies have largely been left to fend for themselves.
Without strong regulatory enforcement, effective loan recovery, and a comprehensive rescue plan, they warn that more such institutions risk collapse - undermining both investor confidence and the sector's stability.
At the end of December 2024, only 40 per cent of finance companies (14 out of 35) were found to be resilient under stress situations compared with 61.8 per cent (21 out of 34) in 2020.
The share of weak institutions rose sharply from 38.2 per cent in 2020 to 60 per cent in 2024, highlighting growing vulnerabilities across the sector.
The number of weak NBFIs reached 21 in 2024, up from 13 in 2020, the central bank data shows. The NBFI stress test results indicate that nine out of 35 finance companies were in sound condition and five were in moderate condition in December 2024.
Hence, only 14 performed as resilient. The remaining 21 performed as weak institutions.
Md Golam Sarwar Bhuiyan, former managing director of Industrial and Infrastructure Development Finance Company, told The Financial Express that the 2019 People's Leasing and Financial Services Ltd scam had shaken public confidence in finance companies. He said the Covid-19 shock in 2020 had further eroded public confidence.
"Our funding comes mainly from banks and depositors. Since 2019, a large number of depositors have withdrawn their funds, while fresh deposits have remained low, severely hurting the financial health of finance companies," Bhuiyan, also the former president of Bangladesh Leasing and Finance Companies Association, said.
The prolonged high interest rate environment had raised borrowing costs for NBFIs while squeezing their deposit base, worsening liquidity stress and profitability, he added.
He noted that around 20 finance companies were currently burdened with non-performing loans ranging between 50 and 70 per cent. Bhuiyan also urged the Bangladesh Bank to extend support to NBFIs the way it assists troubled banks.
"Even the regulator has indicated that nine finance companies may be shut down. Such statements only damage the sector further. It sends the wrong signal when closure is discussed instead of a rescue plan," he added.
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