Sister concerns and the strain on our financial sector

The financial sector in Bangladesh is facing mounting pressure due to the unchecked rise of "sister concerns" within large business groups. Unlike multinational corporations, which tend to stick to their core strengths, many Bangladeshi conglomerates have ventured into numerous unrelated sectors, often without proper financial analysis. The thinking seems to be: if one can turn a profit, so can I. This has led to business sprawl across 10 to 50 different industries. Most of these ventures lose money, with only a handful generating profit.

This unrestrained diversification has triggered systemic financial problems. Loss-making units are rarely shut down. Instead, they survive on funds funnelled from the group's successful arms. Profitable businesses take loans from banks, then redirect the funds through intercompany lending to support the failing concerns. This practice drains the healthier entities and spreads financial strain across the group. Financial reports are often distorted, with "window dressing" used to hide losses and create a false impression of profitability. This allows companies to keep borrowing from banks under false pretences.

Banks are heavily exposed to this cycle. Much of their lending goes to these sprawling corporate groups. The money meant for viable ventures frequently ends up in the coffers of failing sister concerns. As a result, non-performing loans (NPLs) have risen, piling debt on top of interest and threatening the sector's stability.

The roots of the problem lie in a mix of influence, optimism, and denial. Powerful business groups often escape scrutiny, with banks reluctant to enforce strict conditions. Many entrepreneurs refuse to accept failure, holding on to unviable businesses out of pride or false hope. Banks, meanwhile, have often turned a blind eye to the misuse of loans and the manipulation of financial records.

This situation has created a dangerous build-up of risk. NPLs continue to grow, draining bank liquidity and weakening the overall financial system. As more businesses struggle to meet repayments, the pressure on both banks and borrowers intensifies.

Over the long term, this poses a serious threat to the economy. Instead of focusing on sustainable growth, many entrepreneurs are gambling on a rebound that may never come. Profitable businesses are being bled dry to keep loss-making ventures alive, while banks face escalating defaults.

Addressing this issue calls for a fundamental change in mindset and business behaviour. Entrepreneurs must embrace financial discipline and accept that not all ventures succeed. Failing concerns should be wound up, not propped up. Banks must play a stronger role in monitoring how loans are used and steer lending towards financially sound projects. Regulatory authorities should also enforce stricter oversight to stop the manipulation of accounts and ensure that lending decisions are based on genuine financial health.

In sum, the unchecked growth of sister concerns has created a tangled mess of mismanagement that endangers both the corporate and banking sectors. The use of profitable companies to bankroll failing ones is unsustainable and inefficient. Unless business leaders and financial institutions rethink their approach, the strain on the system will only grow, placing individual firms and the wider economy at serious risk.

The writer is the chairman of Unilever Consumer Care Ltd