Bangladesh Bank is planning to initiate mergers and acquisitions among weak non-bank financial institutions (NBFIs) if a similar initiative in the banking industry sees success.

The central bank recently introduced a Prompt Corrective Action framework for the banking industry, under which weak banks are being merged with or acquired by their stronger counterparts.

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Weak banks to merge with strong lenders in a year

As such, the Department of Financial Institutions and Markets of Bangladesh Bank has asked some weak NBFIs to discuss among themselves to decide on potential mergers and acquisitions.

But if needed, the banking regulator will step in and initiate mergers or acquisitions among NBFIs in order to ensure their survival, Bangladesh Bank officials said on condition of anonymity.

They also informed that a number of NBFIs approached the central bank seeking advice on how to initiate potential mergers following the approval of Union Capital's merger with Prime Bank.

Industry insiders said merging some NBFIs would help decrease operational costs and bring down the huge number of loan irregularities that have caused a liquidity crisis in the sector.

Md Golam Sarwar Bhuiyan, chairman of the Bangladesh Leasing and Finance Companies Association, said it would be a very good decision for weak NBFIs to merge with sound ones.

"So, a comprehensive guideline for merging NBFIs is needed," added Bhuiyan, also managing director of Industrial and Infrastructure Development Finance Company Ltd.

With 35 NBFIs in the country, their combined bad loans stood at Tk 21,658 crore as of September last year, accounting for a record 30 percent of their collective disbursals.

Meanwhile, more than 80 percent of the loans disbursed by seven NBFIs had soured by that month.

The seven NBFIs are: BIFC, Fareast Finance, FAS Finance, First Finance, GSP Finance, International leasing and Peoples leasing.

Toufic Ahmad Choudhury, a former director-general of the Bangladesh Institute of Bank Management, recently told The Daily Star that there are too many financial institutions given the size of the economy.

Currently, there are more than 100 financial institutions, including banks, in Bangladesh.

"We do not need so many financial institutions," he added.