Phoenix Finance and Investment – a listed non-bank financial institution– is going under due to irregularities, corruption and mismanagement. Nearly 57 per cent of loans disbursed by the firm so far are now defaulted, with the figure exceeding Tk 1,500 crore.
The firm is witnessing an alarming rise in provision and capital shortfalls. A rapid decline in asset quality is increasing accumulated losses, while a crisis of confidence is making it difficult for the firm to get fresh deposits.
Under the circumstances, Phoenix Finance is facing a serious liquidity crunch. This is preventing the firm from maintaining the central bank requirement of the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). The firm has also been unable to pay customers’ FDRs on time.
Every day, at least one customer is submitting complaints to the central bank against Phoenix Finance, seeking to get back their deposited money. The firm has halted the disbursement of new loans due to fund crunch.
Bangladesh Bank’s observation of the firm's overall financial situation and an investigation carried out by Ziadul Islam of Amader Shomoy paint this picture of the troubled firm.
Industry insiders are blaming the current troubles of Phoenix Finance on the firm’s Managing Director SM Intekhab Alam, as he has been serving in the post since 2008 – for 16 consecutive years.
The firm has been incurring losses for the last two years. Despite this, the firm’s board approved the proposal to extend Alam’s tenure as the managing director of Phoenix Finance. Questions have been raised about this decision.
This proposal was then sent to the Bangladesh Bank for approval, but the regulator did not agree to approve the move. Insiders say the firm’s financial situation has been worsening gradually since 2020.
Borrowers, who took out loans using their own names or by faking identities, are not paying back the firm. If the situation continues, it will be very difficult for Phoenix Finance to continue operations without fresh capital.
Bangladesh Bank officials say among the financial sector irregularities found by the regulator, most point to the disbursement of loans with no or fake collateral. In many cases, the collateral was overestimated, while some loans were disbursed under fake guarantees.
Such irregularities are preventing many firms from taking effective measures, and Phoenix Finance is on this list as well.
The central bank has decided to conduct a detailed inspection of the firm due to the rapid decline of its financial health. The inspection is scheduled to begin soon.
A recent central bank observation on Phoenix Finance states that the firm is not getting back the disbursed loans as those were issued without enough deposits – without proper scrutiny and due diligence.
Besides, there is a lack of proper supervision in the loan recovery process, causing a steady and alarming rise in default loans. The firm is also witnessing a declining trend in other financial indicators.
The correspondent had sent an SMS to Phoenix Finance Managing Director Intekhab Alam on phone and WhatsApp on November 22, seeking comments on the matter. But he did not respond.
Later, the correspondent visited the firm’s head office in the capital’s Dilkusha area and asked an audience with the managing director at the reception. The reception official said Alam was not at the office.
The correspondent then asked to meet the chief of public relations at the firm. The reception official said the chief was not at the office either.
So, the correspondent gave his visiting card to the reception official and requested to speak to the firm’s managing director and public relations chief at their convenience. There was no response for the next 24 hours.
On November 23, the correspondent again called the Phoenix Finance managing director, but he did not respond. He later responded to a WhatsApp call.
The correspondent then requested to speak with Alam on November 26 to discuss the central bank's observation of Phoenix Finance’s overall financial health. Alam declined to meet in person, and said, “Make a report if you have the observation, I have no comment on the matter.”
Sources say the Bangladesh Bank had held a meeting with six financial institutions, including Phoenix Finance on October 13 this year, discussing their liquidity crisis, failure to maintain CRR and SLR, provision shortfalls, availing the deferral facility, and inability to pay back customers after maturity of schemes.
At that meeting, the Phoenix Finance managing director blamed the firm’s ongoing poor financial health on the Covid pandemic, adding that the 2nd phase of this crisis is behind the firm’s financial woes.
He added that nearly 40 per cent of the Phoenix Finance loans are stuck in lawsuits.
“The firm’s board of management is planning to reschedule a few more loans within the next December in a bid to curb the amount of default loans. The firm is also continuing their efforts to increase its capital,” Alam said at the meeting.
Default loans on the rise
Until December 2018, outstanding default loans of Phoenix Finance stood at Tk 156.28 crore, which was only 5.70 per cent of the firm’s total disbursed loans. At the end of December last year, the firm’s outstanding default loans rose to Tk 609.96 crore or 22.58 per cent.
In March this year, the figure further increased to Tk 967 crore or 35.83 per cent of the total disbursed loans.
According to the Bangladesh Bank, the amount of default loans has gone up alarmingly because loans were disbursed without proper collateral, showing a lack of scrutiny, due diligence, and violation of the Bank Company Act 1993 provisions.
The central bank had made this observation on the basis of information collected until March. Later, information on default loans for two more quarters was unearthed. Information shows that the default loans rose to 44 per cent in the June quarter – which is over Tk 1,100 crore.
Data from the September quarter show that the default loans have exceeded Tk 1,500 crore – which is nearly 57 per cent.
Provision, capital shortfalls rising
The high amount of default loans is causing the provision shortfalls to rise at a steady pace. This firm has regularly been taking deferral facilities from the central bank for the last few years. Despite this, the firm has been facing a provision shortfall in every quarter.
According to a report, the firm posted a provision shortfall of Tk 89 crore at the end of March this year. Besides, Phoenix Finance had posted a capital surplus of 9.47 crore in December of 2018. But it witnessed a Tk 91 crore capital shortfall at the end of last year.
This shortfall has currently exceeded over a hundred crore taka.
The firm’s capital adequacy stood at 10.35 per cent in 2018, which then dropped to 6.74 per cent at the end of last year. The fall of this financial indicator is alarming as well.
According to the Bangladesh Bank, the firm’s capital shortfall is widening at a concerning rate due to the depreciation of asset quality and a trend of mounting losses – triggered by total mismanagement.
Accumulated losses increasing
In 2018, the firm posted Tk 28.28 crore in net profit after tax, which has been declining every year since 2019. In 2021, the firm recorded Tk 35.35 crore in net losses. Losses then jumped to Tk 138.61 crore in 2022.
There are concerns that net losses incurred by the firm will go further up this year.
According to the Bangladesh Bank, the situation has been triggered by mismanagement and irregularities, which caused depreciation in asset quality, and caused the situation to worsen further. It will be difficult for the firm to survive if this situation continues.
Inability to pay back depositors
The firm is facing a severe liquidity shortage due to a steady decline in key financial indicators, and irregularities in loan disbursement and recovery processes, which in turn has triggered a crisis of confidence.
It is now unable to pay back the depositors even after the maturity of their schemes.
According to the Bangladesh Bank, more and more complaints against Phoenix Finance are being filed with the regulator, regarding the non-payment of depositors’ money. This indicates severe mismanagement and financial crisis at the firm.
Failure to maintain CSR, SLR ratios
To protect the customers’ money, financial institutions that take deposits must maintain a daily 1.50 per cent CRR with the central bank on a bi-weekly basis. The ratio must not fall below 1 per cent.
Meanwhile, financial institutions taking fixed deposits must maintain a SLR of 5 per cent with the central bank. This figure is 2.5 per cent for financial institutions that do not take deposits.
An investigation showed that Phoenix Finance is failing to maintain the required CRR and SLR ratios with the central bank.
CAMELS rating in decline
Due to overall mismanagement, and a fall in all financial indicators, the firm’s CAMELS rating took a hit.
The firm’s CAMELS rating was “Satisfactory” in 2018, but it dropped to “Average” in 2021. This rating stood at “Fair” in the last two years. CAMELS rating is an indicator of a bank’s overall performance.
This rating reflects a bank’s capital adequacy, assets, management capability, earnings, liquidity, and sensitivity.
