The negative impact of frauds in finance companies operating in the country is becoming more and more evident day by day. Their overall financial condition has become very fragile on average. The situation is getting worse. Funding crunch has become evident. As the rate of deposit growth has fallen, so has the crisis of confidence

or the opportunity to take a loan from another finance company. The most alarming thing is that the amount of assets of these institutions has decreased compared to the amount of customer deposits. Capital decreased at a rapid pace. There is a ‘crazy horse’ race in the rise of defaulted loans. All the indices of these companies have gone to negative level. Only the rate of decline in deposits and risky assets is marginally positive. But some finance companies are doing well.

These data were obtained from the Financial Stability Assessment Report and other reports prepared based on the analysis of the Central Bank. The July-September quarterly report was released on Monday night. It depicts the overall financial condition of the banking sector, the overall economy as well as the finance companies (previously called financial institutions, now it has been changed to finance companies).

Central Report According to the information obtained from various reports, the capital in this sector in 2019 was Tk 12 thousand 660 crore. Due to the increase in defaulted loans due to forgery, the capital decreased to Tk 10,400 crore in 2020. If the impact of the fraud was more pronounced, the capital fell further to 7 thousand 132 crores in December 2021.

In March 2022, it slightly increased to 7 thousand 932 crores. At that time a good number of companies increased their capital through right shares and bonus shares. In December 2022, defaulted loans increased and the capital decreased again to 5 thousand 371 crores. In March 2023, it further decreased to Tk 4,946 crore, in June it further decreased to Tk 3,467 crore and in September, the capital fell to a record amount of Tk 1,761 crore. Decreasing capital reduces their ability to deal with risk.

The gap between assets and liabilities of finance companies is widening. Earlier wealth was greater than debt. Now the amount of debt is high. Resources are reduced. Due to which many institutions are not able to return money to depositors. Many other companies do not have the ability to refund depositors. Assets were slightly higher than debts in June. Assets fall in September, debt rises. As a result, the ratio of assets to liabilities is 100.42 percent. That is, against the debt of 100 taka 42 paise, there is an asset of 100 taka.

Capital adequacy is now at the bottom. In September 2021, it was 13.30 percent. In September 2022, it decreased to 10.16 percent. It halved to 5.08 percent in June. It further decreased to 2.59 percent in September.

On average, finance companies are now facing losses, with income from assets and capital diminishing. The amount of losses is increasing gradually. The last return on assets was 1.5 percent in 2019. Since then there has been no income. Income is negative or loss making. In 2020, the loss was 19.19 percent, in 2021 it was 23.23 percent. In 2022, it increased to 1.27 percent. The rate of loss further increased to 2.02 percent in September.

At the same time, the last income from capital was 10.8 percent in 2019. In 2020, instead of income, the loss is 1.99 percent. In 2021, the loss increased to 2.79 percent. In 2022, the loss further increased to 19.26 percent. It further increased to 104.69 percent in June. That is, the amount of loss is more than the capital investment. Companies are becoming extremely vulnerable as they continue to incur losses.

In 2018, defaulted loans were Tk 5,460 crore, in 2019 it increased to Tk 6,400 crore, in 2020 it increased to Tk 10,500 crore. In 2021, it increased to 13 thousand 20 crores, in 2022 it was 16 thousand 821 crores. In September, defaulted loans further increased to Tk 21,658 crore. During that time, the default rate increased from 9 percent to 30 percent.

On average, companies’ assets are declining. Assets in June were Tk 99 thousand 685 crore. In September it decreased to 98 thousand 927 crore taka.

There are four main sources of funds for the business of finance companies. These are loans, deposits, capital and other resources. In comparison to June, the borrowing status from banks or other companies decreased from Tk 28 thousand 512 crore to Tk 27 thousand 737 crore in September. Due to the crisis of confidence, no one wants to give them new loans. Rather, it is withdrawing earlier loans from weaker companies.

Compared to June, deposits increased by only Tk 44 crore in September. Deposits were decreasing earlier. Increasing slightly in recent times. But this rate is very insignificant. The supply of investment funds from capital has decreased. Capital in June was 1 thousand 366 crores. In September, it decreased to a deficit of Tk 416 crore. As a result, no new investment or loan can be made from the capital.

In such a situation, companies are forced to raise funds from other sectors. The status of funds collected in this sector in June was 22 thousand 85 crores. It increased to 23 thousand 839 crores in September.

Government institutions are withdrawing deposits from weak companies. As a result, government deposits are decreasing. In June, government deposits were Tk 48 crore. In September it decreased to Tk 42 crore. Earlier, government deposits were more than 60 crore rupees.

Risk assets of companies have decreased slightly. In March last year, it was 70 thousand 562 crores. It decreased to 68 thousand 258 crores in June. In SeptemberIt further decreased to 67 thousand 947 crores. As a result of central bank supervision, good companies have increased the provisioning rate against defaulted loans. This has reduced the risk assets somewhat.