Despite facing liquidation, the shares of scam-hit non-bank financial institutions (NBFIs) have surged sharply on the stock exchanges over the past three months.
The five listed NBFIs-FAS Finance, Premier Leasing, Fareast Finance, People's Leasing, and International Leasing-have seen their share prices jump between 238 per cent and 343 per cent during the period, while they have remained largely non-operational for years.
This has happened at a time when many well-performing companies are experiencing price erosion on the back of global geopolitical tensions surrounding the Middle Eastern war.
Market analysts attribute the unusual rally to speculation that the BNP-led government may reconsider or delay the liquidation process.
Earlier, the announcement of the institutions' winding up had sent their stocks plunging below Tk 1 each.
"Speculative trading and short-term profit motives fueled the recent price surge of non-functional NBFIs," said Salim Afzal Shawon, head of research at BRAC EPL Stock Brokerage, in a telephonic conversation with The Financial Express.
With share prices reduced to a penny or even less, some investors were inspired to place bets on them to earn quick gains, said Mr Shawon. "Investors in these stocks have taken high-risk bets."
In December last year, the Bangladesh Bank announced the winding up of nine NBFIs-eight of which are listed-marking the first large-scale liquidation in the country's financial sector.
The move aims to protect depositors and restore financial stability, as the institutions have long struggled to repay them due to unsustainable financial conditions stemming from massive irregularities and loan fraud during the previous government.
Although their stocks had long traded far below face value, the central bank's announcement sparked panic, and the shares fell below Tk 1 per share in January this year.
Later, three of the nine firms-Prime Finance, GSP Finance, and Bangladesh Industrial Finance Company (BIFC)-were given six months in January to improve their financial conditions.
Analysts, however, said such low-performing stocks have recently become targets for speculative trading. Manipulators often drive up prices through serial trading and spread rumours to lure general investors.
Md Sajedul Islam, a DSE director, described the rally as "abnormal," blaming price manipulation for the surge in fundamentally weak companies.
"The stock price hike of these junk stocks is unusual considering their current status," said Mr Islam, also managing director of Shyamol Equity Management.
However, he said the government had recently started preparations to compensate small investors of the five banks that merged into Sammilito Islami Bank, which may have drawn investors to put money into these NBFIs in anticipation of getting their money back with profits.
Instructed by the high-ups of the new government, the Financial Institutions Division (FID) is calculating the amount needed to compensate investors who bought shares of the five banks from the stock market.
The mode of payment-whether investors will be compensated based on the prices of shares on the last trading day or at face value-is yet to be finalised.
"The possibility of policy reconsideration by the new government has reignited speculative trading in these stocks," said Mr Islam.
The newly appointed Bangladesh Bank Governor Md Mostakur Rahman, however, said that the initiative to merge the country's weak banks would continue.
But the liquidation process of weak NBFIs under the new governor remains unclear.
Akramul Alam, head of research at Royal Capital, said that given the current financial condition, general investors have little to hope for, as they would be at the bottom of the repayment hierarchy.
In other words, once assets are sold and liabilities are settled, little-or nothing-may remain for ordinary shareholders.
Under liquidation rules, external creditors are paid first, followed by depositors, debenture holders, and preferential shareholders.
"In such insolvency-driven liquidation, shareholders sit at the very bottom of the list of claimants," Alam said.
Collectively, the NBFIs facing liquidation account for 52 per cent of total defaulted loans in the NBFI sector, estimated at Tk 251 billion at the end of 2024.
Except for Prime Finance, all recorded negative net asset values (NAV), ranging from Tk 0.62 to Tk 219.03 per share. This indicates that their liabilities far exceeded their assets, reflecting severe financial distress and poor asset quality.
Shareholders of the NBFIs slated for liquidation may ultimately lose everything unless the government compensates general investors, Mr Alam said.
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