Bangladesh’s non-banking financial institutions (NBFIs) sector has been suffering from huge non-performing loans, liquidity crisis and extreme contraction in net interest margins of NBFIs in recent quarters.
A significant portion of the blame can be attributed to non-compliant companies sunk by non-compliance and embezzlement.
But with better corporate governance, winning strategies, and the financial strength to weather tough times, some top-tier companies clearly set themselves apart from their mediocre competitors, and they also offer more value to their depositors. This presents a contrast to run-down NBFIs that are struggling to make repayments.
For example, at the end of the difficult year 2022, the average non-performing loan (NPL) ratio for listed NBFIs was close to 24%, driven by extreme numbers such as 89% non-performing loans for international leasing companies that were victims of fraud. It rose sharply to
Meanwhile, leading companies have successfully blocked bad loans to within 3% to 7%, and home loan provider Delta Black Housing (DBH) Finance Corporation has recovered more than 99% of its loans. Succeeded.
Specialized NBFIs appeared to be the strongest in the eyes of analysts, with similarly strong performance on several key financial metrics that analysts follow.
The research arm of brokerage firm EBL Securities released its “NBFI Sector Performance and Earnings Update” report at the end of August, giving DBH an impressive score of 89.69 out of 100. According to the 2022 audited financial report, DBH’s main competitor in the housing finance business is DBH. , National Housing Finance Investments secured his third place among all his NBFIs with a score of over 68.
“Relatively low mortgage default rates contribute to the high profitability and rankings of these two specialized NBFIs, reflecting their strong financial health,” said Rayhan Ahmed, senior researcher at EBL Securities. “There is,” he said.
IDLC Finance Ltd, the largest NBFI in the country, will secure the second position among all NBFIs by the end of 2022, achieving a score of 73 or above and becoming a champion among full-fledged NBFIs with a diversified business portfolio. He maintained his position as.
Analysts at EBL Securities considered earnings per share, cost-to-earnings ratio, return on equity, return on assets, operating profit margin, net interest margin, bad debt management, and dividend yield as evaluation criteria.
IPDC Finance, a fast-growing NBFI that has undergone significant transformation since BRAC, the world’s largest non-governmental organization, acquired a major stake eight years ago, ranks among the most diversified NBFIs with a score of 59.73. 2nd place and 4th place overall.
Bangladesh Finance, another NBFI that is transforming its business model and operations, ranked fifth overall with a score of 43.51.
The second-largest NBFI, Lanka Bangla Finance, came in sixth place as its financial performance took some hit as its foreign currency debt ballooned due to Taka devaluation last year.
United Finance ranked 7th among all NBFIs with a score of 40.17.
Bangladesh State Investment Corporation secured eighth place with a poor score of 27.4 out of 100, despite having 27.3% non-performing loans.
By contrast, hard-hit companies such as International Leasing and First Finance had scores near zero, even though they had far more debt than assets.
Mominul Islam, IPDC Managing Director and CEO He said that this could lead to a short-term decline.
But, he added, “financial institutions with strong risk management and good governance practices overcome and pursue their vision.”
He said his company’s superior position was due to its socially responsible business model and priority for sustainable growth.
National Housing MD and CEO Mohammad Shamsul Islam believes that corporate governance and transparency are his company’s greatest strengths leading to financial strength.
Bangladeshi Finance may not have made it into the top 10 had the rankings been done before the pandemic, as it had previously lagged behind due to investment losses and had high non-performing loans in its dominant large corporate lending sector.
The company’s MD and CEO, Md Kyser Hamid, appreciated the transformation program undertaken by the company during the pandemic, which resulted in stable business and efficient operations.
Hamid, who is also vice-chairman of the Bangladesh Leasing and Finance Companies Association, said bank borrowings will decrease, customer deposits will increase, large loans will decrease and small loans will increase, and technology will increase for efficient and transparent operations. He said that progress is being made in strengthening cooperation with a wide range of stakeholders. It has proven to be a winning tool in his industry.
DBH MD and CEO Nasimul Baten believes that the improved quality of loans disbursed and the readiness to repay depositors en masse will make a significant difference. His company has controlled bad debts to within 1% for the past 18 years.
Hamid said the NBFI industry faces even tougher conditions in the first half of 2023 due to record low interest rate spreads due to rising deposit rates and lending rate caps set until early July.
The NBFI industry’s net interest income, net profit, return on equity, return on assets, and spread all declined in the first half of 2023.
With the exception of two housing finance companies, each of the top NBFIs had lower scores at the end of June compared to six months ago.
But the central bank’s new approach to setting dynamic caps on lending rates helped create some breathing room, he added.
Each CEO was optimistic that well-governed companies would come back with higher profitability, even if they overcome the economic hurdles.
Rayhan Ahmed of EBL Securities echoed this sentiment, saying the central bank’s implementation of market-based lending rates and governance strengthening initiatives could bode well for a potential turnaround in the NBFI sector.