Professional Documents
Culture Documents
P R E P A R E D
B Y :
Fakrul Islam
(M.B.A 15th Batch)
Roll No: 14-146
Department Of Finance
Faculty of Business Studies
UNIVERSITY OF DHAKA
D A T E
O F
S U B M I S S I O N :
1 6 T H F E B R U A R Y ,
2 0 1 4
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I am
FAKRUL ISLAM
14-146
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Letter of transmittal
16th February, 2014
Mr. Jahangir Alam Chowdhury
Professor and M.B.A Director
Department of Finance
University of Dhaka
Sir,
It is my immense pleasure to submit my class report as you asked us to prepare and
submit as a requirement of course Management of Financial Institutions (F-501)
on Growth of Non-Bank Financial Institutions in Bangladesh".
I have tried my best to compile the pertinent information as comprehensively as
possible and if you need any further information, I will be obliged to assist you.
Thanking you,
Fakrul Islam
Roll No. 14-146
MBA 15th batch
Department of Finance
University of Dhaka.
Table of Contents
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No.
Contents
Page No
01
Executive Summary
05
02
06
03
09
04
09
05
10
06
15
07
Conclusion
21
Executive summary
4|Page
Financial institutions have traditionally been the major source of long-term funds for
the economy in line with the development objective of the state. A wide variety of
financial institutions (FIs) emerged over the years. While most of them extend direct
finance, some also extend indirect finance and still some others extend largely
refinance. FIs can be broadly categorized as nature of their operations.
Non-Bank Financial Institutions (NBFIs) in Bangladesh are gaining increased
popularity in recent times. Though the major business of most NBFIs is leasing some
are also diversifying into other lines of business like term lending, housing finance,
merchant banking, equity financing and venture capital financing. The purpose of
this paper is to highlight different features of NBFIs, their contribution to the overall
economy and the product base of NBFIs. The paper also describes the performance
of NBFIs as measured by different financial instruments.
The paper describes Porter 5 factors for financial institutions in Bangladesh. Here I
discussed how the NBFI will sustain by competing with various factors. Then the
paper illustrates the asset, liability composition of NBFI. After that I discussed
Profitability ratios for NBFI in Bangladesh. Then, I discussed the Asset quality of NBFI
and decision of stress testing where we see most of the NBFIs are in satisfactory
level except eight NBFI.
5|Page
INTRODUCTION
Bangladesh economy continues to prove significant resilience from its birth. On the
basis of emergent macroeconomic indications, GDP growth rate is expected to be
7.2 percent in the calendar year 2013-14. In the latest budget of our country GDP is
estimated to be 6.03% (Assumed by ADB 5.7% and IMF 5.8% but though it was
expected as more than 7% in the calendar year 2012-2013. The failure to catch the
target is affected less by the slowdown in international trade than other emergent
economies (especially Asian countries) and has sustained solid financial & economic
fundamentals. Rather the situation is mainly characterized by the political turmoil in
our country.
2012-13
433,720
448,839
2011-12
409,053
420,096
2010-11
385,050
394,420
2009-10
360,845
371,130
2008-09
-
340,197
100,000
200,000
300,000
400,000
500,000
600,000
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2012-13
6.359%
6.030%
2011-12
6.842%
6.234%
6.510%
2010-11
2009-10
6.069%
2008-09
5.741%
6.708%
6.275%
5.962%
5.000% 5.200% 5.400% 5.600% 5.800% 6.000% 6.200% 6.400% 6.600% 6.800% 7.000%
Inflation Rate
The inflation rate in Bangladesh was documented at 9.22 percent in the calendar
year 2012-13. This inflation Rate in Bangladesh is periodically conveyed by the
Bangladesh Bureau of Statistics. Historically, average inflation rate in Bangladesh is
about 6.57 Percent. This inflation rate reached at the highest ever point at 12.71
Percent in December of 1998 and it got at a record lowest point of -0.02 Percent in
December 1996.
Source: Statistics Department, Bangladesh Bank and EPB
12
6
4
2
10.62
9.94
10
87.06
4.38
2.79
1.94
5.83 6.48
7.16
7.2
6.66 7.31
8.8
9.22
2.79
Money supply
In recent years an increasing tendency in broad money is observed except FY200607. Though the overall development of broad money position is inconsistent, but the
total amount amplified in the successive years under study period. During FY 201213, total broad money in our economy has increased to 619,901.03 crore Taka from
517,109.50 crore taka of FY 2011-12.
7|Page
700,000.00
619,901.03
600,000.00
500,000.00
400,000.00
300,000.00
200,000.00
100,000.00
0.00
M3
M2
M1
Inflation Rate
General Index
8|Page
Money Market
Financial
market of
Bangladesh
Foreign Exchange
Market
Capital market
9|Page
NBFIs had the opportunity to carry out the businesses in the same line as of
banking. Then, Bangladesh Bank circulated an order titled Non-Banking Financial
Institutions Order, 1989 to confirm enhanced regulation bylaw and at the same
time the Bangladesh Bank also initiated this law to eradicate the ambiguity
regarding the acceptable areas of business for NBFIs. But unfortunately this was not
enough to satisfy the NBFI institutions as it did not cover the comprehensive variety
of NBFI activities. The order (Non-Banking Financial Institutions Order, 1989) also
did not refer anything clearly about the statutory liquidity obligation thats to be
maintained with the central bank.
Later, in order to eliminate the previous regulatory insufficiency a new act titled
Financial Institution Act, 1993 was passed in 1993. The act also clearly defines a
broad range of activities to be covered by NBFIs. Industrial Promotion and
Development Company (IPDC) was the first NBFI in Bangladesh, which commenced
its process in 1981. Since then, the quantity of NBFI has been growing and as of July
2013 it touched at 31.
Currently, in our country the operations of NBFIs are controlled and regulated by the
Bangladesh Bank. The authority to involve in borrowing from the general public
usually depends on some factors as minimum capital requirement, excellence of
management, obedience with the concerned and related laws, rules and regulations
and steadiness of respective financial standing. NBFIs may award loans to their
clients and the general public up to a certain amount or proportion and may also
participate in trust functions with specific earlier consent of the central bank. The
NBFIs are not permitted to participate in foreign exchange transactions under the
pre stated laws and orders.
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GSP Finance Company (Bangladesh) Limited (GSPB), having its registered and
operational office is located at 1/C Paribag, Mymansingh Road, Ramna, Dhaka-1205,
Bangladesh. The company was incorporated in Bangladesh as a private limited
company on April 17, 1996. The company obtained license from Bangladesh Bank
under the Financial Institutions Act, 1993.
9. Hajj Finance:
Hajj Finance Company Limited, having its registered and operational office is located
at Fajlur Rahman Centre (8th Floor), 72, Dilkusha Commercial Area, Dhaka-1000,
Bangladesh. The company was incorporated in Bangladesh as a private limited
company on July 02, 2007. The company obtained license from Bangladesh Bank
under the Financial Institutions Act, 1993.
10. IDLC Finance Limited:
IDLC Finance Limited is a multiproduct financial institution, established in 1985 with
the collaboration of reputed international development agencies like Korean
Development Leasing Corporation (KDLC), South Korea. The primary goal of IDLC
was to help modernize the financial services industry, by introducing modern modes
of financing hitherto unknown to Bangladesh. This, we set about to do, by
pioneering the launch of a multitude of financial products and services.
11.
Industrial and Infrastructure Development Finance Company
(IIDFC) Limited:
Industrial and Infrastructure Development Finance Company Limited (IIDFCL) was
incorporated in Bangladesh on December 19, 2000 as a public limited company. The
Company was licensed under Financial Institution Act, 1993 by Bangladesh Bank on
January 23, 2001 and started operation from May 2001. The registered office of the
Company is situated as Chamber Building (6th Floor), 122-124, Motijheel C/A, Dhaka
1000, Bangladesh.
12.Industrial Promotion and Development Company of Bangladesh
Limited(IPDC):
IPDC is the first private sector Financial Institution in Bangladesh established in
1981 by a distinguished multilateral team of shareholders.
13.Infrastructure Development Company Limited (IDCOL):
Infrastructure Development Company Limited (IDCOL) was established on 14 May
1997 by the Government of Bangladesh (GOB). The Company was licensed by
Bangladesh Bank as a non-bank financial institution (NBFI) on 5 January 1998. Since
its inception, IDCOL is playing a major role in bridging the financing gap for
developing medium and large-scale infrastructure and renewable energy projects in
Bangladesh. The company now stands as the market leader in private sector energy
and infrastructure financing in Bangladesh.
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capital Tk. 2000 million paid up capital of Tk. 400 million. Our finance includes
Housing finance, Lease finance, Deposit scheme, Car Loan.
20.Peoples Leasing and Financial Services Ltd:
Peoples Leasing and Financial Services Limited (PLFS) is a financial institution
established within the ambit of Financial Institutions Act-1993 and was incorporated
as a Public Limited Company under Companies Act-1994 on August 12, 1996.
Company obtained license from Bangladesh Bank on November 24, 1997 to carry
on lease finance business. Authorized Capital of the Company is Tk. 500 million
divided into 5 million ordinary shares of Tk. 100/- each while Paid-up Capital as on
September 30, 2004 stands at Tk. 130 million subscribed by the sponsors.
21.Phoenix Finance and Investments Limited:
Phoenix Finance & Investments Limited (Former Phoenix Leasing Company Limited),
one of the leading and reliable multi products Financial Institution in Bangladesh
was incorporated in Bangladesh on April 19,1995 as Public Limited Company under
the Companies Act 1994 and started its operation on May 9 1995 as a Non Banking
Financial Institution under Financial Institution Act 1993 , it has changed its name to
Phoenix Finance & Investment Limited (PFIL) with a view to reflecting multidimensional financial activities the company has been doing other than Lease
Financing which although , has remained as the prime area of the financial
activities.
22.Premier Leasing and Finance Limited:
Premier Leasing & Finance Limited, a third generation financial institution, was
registered on September 26, 2001 as a Public Limited Company as Premier Leasing
International Limited with authorized capital of TK.400 Million and initial paid-up
capital of TK.51 Million. The Company went for public subscription by floating its
shares in the capital market in July 2005. Companys issued and fully paid-up capital
as on December 31, 2008 stood at TK.344 Million.
23.Prime Finance and Investment Ltd:
Prime Finance is one of the leading financial institutions operating in Bangladesh.
Our core competencies cover lease finance, term finance.
24.Reliance Finance
Reliance Finance Limited (REFL), began its journey in March 1996 as a Public Limited
Company under license from Bangladesh Bank to provide innovative financial
services. Since inception, REFL Company has been rendering prompt and cost
effective financial services with distinctive customer service. The Company has
diversified its business and the growth has been steady and satisfactory. Reliance
Finance Limited (REFL), began its journey in March 1996 as a Public Limited
Company under license from Bangladesh Bank to provide innovative financial
services. Since inception, REFL company has been rendering prompt and cost
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effective financial services with distinctive customer service. The Company has
diversified its business and the growth has been steady and satisfactory.
25.Saudi-Bangladesh Industrial and Agricultural Investment Company
Limited (SABINCO):
Saudi Bangladesh Industrial and Agricultural Investment Company Limited,
popularly known by its acronym SABINCO, is a joint venture Industrial Finance and
Investment Company owned by the Governments of Saudi Arabia and Bangladesh.
It was incorporated under the Bangladesh Companies Act 1913 on 24th June 1984
with its headquarter in Dhaka. The company commenced operation in 1986. In
1993 Bangladesh Bank granted license to operate it as a Non-Banking Financial
Institutions.
26.The UAE-Bangladesh Investment Co. Ltd:
UAE Bangladesh Investment Company Limited a private limited company
incorporated in Bangladesh under the Companies Act 1913 on 11 June 1987 with a
desire to consolidate the joint efforts of the government of Bangladesh and United
Arab Emirates to promote economic co-operation between them. To this effect, a
contract was signed on 8 November 1986 between the governments of Bangladesh
and Abu Dhabi Fund for (Economic) Development.
27.Union Capital Limited:
UNION CAPITAL LIMITED is one of the largest investment banks and fastest growing
financial institutions in Bangladesh. Previously, it was known as Peregrine
Bangladesh which had its origins and businesses rooted in Hong Kong. Out of the
local office of the erstwhile Peregrine Capital Limited of Hong Kong, Union Capital
Limited, Dhaka emerged in early 1998 as a Bangladesh-based company led by a
group of the foremost entrepreneurs of the country. Union Capital, within a short
span of time, has proved its worth as a most forward-working vigorous organization
achieving success with its wide international network and strong local base.
28.United Leasing Company Limited (ULCL):
ULC was established in 1989 as a public limited company, to cater the investment
needs of our economy.
29.Uttara Finance and Investments Limited:
Uttara Finance and Investments Limited have been operating as Financial Institution
since 7 May 1995 under license from Bangladesh Bank (Central Bank). The company
extends lease, loans and asset management services. The companys clientele base
is from SME to large corporate houses. The company also accepts Term Deposits
from individuals and corporate bodies.
30.Agrani SME Financing Company Limited:
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24.29
Sector Cap
BDT 153,932,941,575
Sector Earnings:
BDT 6,336,410,668
Sector Beta:
0.9125
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Sector Earning
6.34
21.81
153.93
Sector Cap
P/E Ratio
0
421.46
24.29
19.32
50
100
150
Bank
200
250
300
350
400
450
Financial Institutions
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Other investments
13.6
13.7
13.6
2.4
Investment in government securities 3
3.1
CY2010
CY2011
CY2012 192.6
134.8
109.2
Term finance
54.8
65.1
59.8
Lease finance
0
50
100
150
200
250
326.6
CY2011
276.4
CY2010
0
243.6
50
100
150
200
250
300
350
Total assets
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59.6
CY2012
267
145.2
57.3
CY2011
219.1
116.4
42.6
CY2010
201
99.8
50
100
150
Deposits
200
250
300
Total liabilities
CY2011
547.99%
482.37%
CY2010
571.83%
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From the liability composition of the NBFIs in our country it can be summarized that
the portion of liability is more influential than the equity portion. Debt to equity ratio
is very high for this industry.
10.20%
1.90%
4.30%
CY2011
12.10%
2.50%
4.30%
CY2010
14.40%
2.50%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
CY2012
11.00%
6.80%
CY2011
10.90%
6.10%
CY2010
0.00%
9.70%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Average Spread
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recently, some restrictions have been imposed on the spread, the average spread
for financial institutions have dropped sharply.
12.50%
22.10%
67.50%
CY2011
12.20%
18.00%
65.70%
CY2010
16.30%
24.80%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
20.70%
CY2011
18.30%
17.00%
17.50%
18.00%
18.50%
19.00%
19.50%
20.00%
20.50%
21.00%
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As per recent modification in the rules and guidelines by Bangladesh Bank, every
financial institution has to maintain 10% capital adequacy ratio over its total risk
weighted assets. Over the last two calendar years, as per Bangladesh bank reports
average capital to risk weighted assets was more than the desired level. The stress
test result from the Bangladesh Bank report based on end December 2012 data
discloses that out of 31 NBFIs the 22 listed NBFIs submitted their stress testing
report formally. Among the 31 NBFI 3 are to be found in green zone, 19 are to be
found as in yellow zone and the rest 8 are to be found as in red zone.
Conclusion:
Emergence of NBFIs has created a new avenue in our bank dominance traditional
financial system. Long term lending of banks is mostly unfamiliar product for them,
and has created a serious distortion in the financial market. Rather than gaining any
benefit from such types of activities, the society is now carrying the load of
overwhelming default loans. As leasing is considered as an alternative of long term
financing many NBFIs have strong performance in leasing business. NBFIs have to
be equipped with highly professional personnel and technological advancement to
chase the future opportunities and competition as well. Strong institutional support
is necessary for the development of capital market which is the core of economic
development in the market economic system. NBFIs around the world provide
institutions support to the capital market. In Bangladesh, now 23 NBFIs are
registered with the SEC and they should concentrate more on their activities in the
capital market.
NBFIs are suffering from high cost and scarcity of funds. At present, with high cost
of fund non-banks are forced to compete with the banks those have relatively low
cost of fund. This situation somewhat hampers the growth and development of
NBFIs. For rapid growth and development of this sector, fund problem should be
solved on a priority basis. Opening of a refinancing window even for a limited period
of time may be considered after a strategic evaluation. Banking has the
multifaceted own activities so that for bringing more efficiency in their own
efficiency as well as the efficiency of the financial system they should not be
involved with the activities that the NBFIs can do. It is recommended that
government and the central bank will take initiatives to ease the fund constraint of
NBFIs so that they can minimize their cost of fund and to bring their cost of fund at
a market level. NBFIs from their part shall be much more attentive in rigorous
project analysis to perform the loans well. A modern and dynamic regulatory
framework is required for the rapid and effective development of NBFIs. Bangladesh
Bank has formulated and declared policies for classifying and provisioning of
investment resources of NBFIs in June 2000. The classification rule has been
formulated with a view to judging quality of investment funds, strengthening
discipline in lending and recovery, securing peoples deposit, having provisions for
the loss of unrecoverable invested funds and imposing interest against bad
investment. This classification procedure will definitely improve and promote the
activities of NBFIs, but the procedure is always subject to improvement with the
diversification of products of NBFIs. Secondary bond market growth of NBFI is much
better than the banks. This is a positive sign for the NBFIs. BB now establishes the
Basel Accord for the NBFIs which will ensure more clarity of NBFIs reporting.
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There are many problems in the development process of NBFIs and consequently
strengthening the financial system of Bangladesh. It is now well established that
NBFIs can contribute much in strengthening the financial system as well as in the
process of economic development of the country. Since inception in 1986, NBFIs are
some-what successful to draw attention of the people and establish its importance
in the financial sector as well as in the economy of Bangladesh. The business
growth of the NBFI and their performance and rating is improving every year, which
shows the positive sign for this industry. It is hoped that in future NBFIs would be
able to play more significant role in the development of economy of Bangladesh.
Banks and Non-Bank Financial Institutions are both key elements of a sound and
stable financial system. Banks usually dominate the financial system in most
countries because businesses, households and the public sector all rely on the
banking system for a wide range of financial products to meet their financial needs.
However, by providing additional and alternative financial services, NBFIs have
already gained considerable popularity both in developed and developing countries.
In one hand these institutions help to facilitate long-term investment and financing,
which is often a challenge to the banking sector and on the other; the growth of
NBFIs widens the range of products available for individuals and institutions with
resources to invest. Through their operation NBFIs can mobilize long-term funds
necessary for the development of equity and corporate debt markets, leasing,
factoring and venture capital.
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