Govt approves BB proposal to liquidate People's Leasing

The government has approved a central bank proposal for liquidating People's Leasing and Financial Services Ltd (PLFSL) considering its fragile financial state even as concern grows over depositors' protection,

Liquidation is the process of bringing a business to an end and distributing its assets to claimants. It usually occurs when a company is insolvent, meaning it cannot meet its payment obligation when due.

On June 27, the ministry of finance, in a letter to Bangladesh Bank (BB), gave the approval for liquidation.

With the folding of the operations of the company, this will mark the first liquidation of a financial institution in Bangladesh, they said.

"We've got approval from the proper authority and informed the central bank accordingly," a top official at the financial institution division said

"The financial condition of the company is the worst. It won't be able to improve its health," he said referring to the central bank's note.

The High Court can order liquidation of any financial institution (FIs) based on the central bank's application provided the licences of such FIs are cancelled and if such lenders are unable to repay loans and convicted for violating the relevant law.

Peoples' is a company having had an authorised capital of Tk 5.0 billion and paid up capital of Tk 2.85 billion. The sponsor directors of the company hold 23.21 per cent shares, institutions hold 8.76 per cent, foreigners hold 0.19 per cent, and public hold 67.84 per cent.

Until 2014, Peoples' shares were trading under 'A' category on the Dhaka Stock Exchange. However, the company was relegated to "Z" category having failed to offer any dividend to shareholders in 2015.

On Monday, its shares were trading at Tk 4.0, below the face value of Tk 10, with only 174,433 shares changing hands.

BB spokesperson Serajul Islam did not make any comment on this issue.

Managing Director and CEO of the company Sami Huda could not be reached over telephone and texting SMS seeking comments on the company's latest affairs met with silence.

People familiar with the situation, however, said the central bank has started the process of liquidating the company in line with the existing rules and regulations.

The BB high-ups have already started consultation with its panel lawyers to execute the liquidation process of the non-banking financial institution (NBFI).

The issue is likely to be a key agenda of the BB's next board meeting, the people said.

The central bank had earlier sent a proposal to the Finance Ministry detailing the latest financial situation of the non-bank institution the PLFSL and sought approval for liquidation.

Officials also said to execute the liquidation process of the company, money from public exchequer may be needed.

Thus, the central bank had sought the government's approval before initiating liquidation process, they noted.

They said an external audit firm will be hired to assess the actual financial health of the company after appointing an official liquidator in line with the court order.

"Peoples is unable to repay its depositors' money accordingly," a BB senior official told the FE.

He urged giving top priority to small investors.

More than 60 per cent of loans and leases of the company have already turned into non-performing loans (NPLs) of its total outstanding loans and lease worth Tk 11.33 billion as on March 31, 2019 comes under the radar , according to statistics.

Its financial health deteriorated despite the appointment of an observer.

Banking analyst Khondkar Ibrahim Khaled supported the liquidation of the company, saying unless this financially fragile company is liquidated, its peers will feel encouraged to deceive depositors.