Bangladesh's non-bank financial institutions operate under the Financial Institutions Act 1993, supervised by Bangladesh Bank's Financial Institutions Department (FID). As of 2024-25, 35 NBFIs held licences, but the sector has been under acute stress for over a decade. Directed lending fraud, connected-party transactions, and regulatory forbearance under successive governments allowed a subset of institutions to accumulate NPL ratios far above any sustainable threshold.

By December 2024, the sector's gross NPL ratio reached 33.25 percent (Tk 25,089 crore of Tk 75,450 crore in total outstanding loans), according to the BB Financial Stability Report 2024. By September 2025, the ratio had risen to 37.11 percent. The BB FSR 2024 found only 9 of 35 NBFIs financially sound and classified 21 as weak.

The five institutions approved for liquidation in May 2026 represent the extreme end of this distribution. Their NPL ratios range from approximately 93 percent (Aviva Finance) to 98 percent (Fareast Finance). At these levels, recovery through recapitalisation or merger is not commercially viable.

The Bank Resolution Ordinance 2025: A New Legal Scaffold

Until 2025, Bangladesh had no dedicated bank or NBFI resolution framework. Distressed institutions were handled through ad hoc Bangladesh Bank directives, BSEC board restructurings, and High Court petitions under the Companies Act. People's Leasing illustrates the failure of this approach: BB filed an HC liquidation petition in July 2019, the court opted for restructuring, a provisional liquidator was appointed, the board was reconstituted, and the institution remained non-operational for seven years while depositors waited.

The Bank Resolution Ordinance 2025, gazetted by the interim government, for the first time gave Bangladesh Bank statutory powers to: (1) place institutions under conservatorship, (2) initiate merger or transfer of assets, and (3) commence formal liquidation with a defined depositor compensation hierarchy. The Ordinance also brought NBFIs explicitly within its scope, closing a gap that had left them in a regulatory grey zone for resolution purposes.

The May 2026 Decision: Five Institutions, One Framework

On May 13, 2026, the Bangladesh Bank board gave preliminary approval to liquidate FAS Finance, Fareast Finance, Aviva Finance, People's Leasing, and International Leasing. Formal proceedings are scheduled to begin July 1, 2026. BB will appoint an administrator and two additional officials per institution and declare each non-operational.

The five-NBFI cohort is not arbitrary. Four of the five (People's Leasing, International Leasing, FAS Finance, and a fourth entity) are linked to alleged embezzlement by PK Halder, the former NRB Global Bank managing director arrested in 2022 for diverting at least Tk 3,500 crore through fictitious loans. Fareast Finance carried separate governance failures that produced a 98 percent NPL ratio and a net loss of Tk 1,017 crore.

Depositor Protection: Terms and Limitations

The depositor protection scheme under the liquidation has three tiers:

1. Individual depositors below Tk 10 lakh: full principal repayment, no interest.
2. Individual depositors above Tk 10 lakh: pro-rata repayment based on recoverable assets.
3. Institutional and corporate depositors: lowest priority; recovery uncertain.

The government has committed to allocating approximately Tk 5,000 crore in the upcoming national budget to fund Tier 1 repayments. This is a fiscal transfer, not a deposit insurance payout: Bangladesh has no formal deposit insurance scheme for NBFIs (unlike banks, which have a limited deposit insurance fund under the Bangladesh Bank's framework). The 5,000 crore figure covers principal only for the retail depositor cohort across all five institutions.

Policy Implications

Three questions determine whether the Bank Resolution Ordinance 2025 becomes a credible resolution mechanism or a one-off emergency measure:

Asset recovery discipline. Liquidation administrators must pursue loan recovery aggressively from defaulter-directors and connected borrowers. In past NBFI restructurings, recovery rates on directed loans have been near zero. The PK Halder prosecution offers a template but has not yet produced significant asset recovery for depositors.

Depositor confidence in the broader sector. The Tk 5,000 crore government support package is a signal, but it is not a guarantee for the 26 remaining NBFIs. Until a formal deposit insurance framework is enacted, retail depositors in weak NBFIs have no statutory backstop beyond a future political commitment.

Regulatory consistency. The BB FSR 2024 identified 21 weak NBFIs. Five are being resolved. The remaining 16 weak institutions require a transparent triage: restructuring for those with viable franchises, liquidation for those without. Selective action without a published framework risks regulatory arbitrage and continued forbearance.