ISSN: 2349-4468

International Journal of Advances in Management, Economics and Entrepreneurship

Available online at: www.ijamee.info

RESEARCH ARTICLE

Growth and Prospects of Leasing Industry in Bangladesh: A Study Based

on Performance Evaluation of Selected Leasing Firms
Chowdhury Sarahat S*

Department of Business Administration, East West University Plot A/2, Jahurul Islam City, Aftabnagar, Dhaka
1212, Bangladesh

*Corresponding Author: E-mail:sarahat.chowdhury@gmail.com

Abstract

In a developing country like Bangladesh, the growth of leasing industry signals a remarkable change in the source
of industrial and agricultural financing. As opposite to the traditional source of funds obtained from commercial
banks and stock markets, many large scale businesses have become more dependent on leasing companies to obtain
the required financing to continue business smoothly. Thus, the leasing business in Bangladesh has become more
and more popular day by day. The journey of leasing business has started in Bangladesh in the early 80s. After
commencement the leasing corporations play a vital role in the economic development of the country. Therefore an
attempt has been made through this study to explore the leasing industry in Bangladesh, by analyzing the financial
performance of selected leasing companies based on growth percentage and ratio analyses of some company specific
variables. Also the paper tried to shed light on the determinants of net profitability of the selected leasing
companies through regression analysis and thus tried to focus on the future prospects of leasing industry in
Bangladesh.

Keywords: Leasing companies, Deposit, Loan, Net profit, Bangladesh.

Introduction
Leasing in its simplest form is a means of
delivering finance, with leasing broadly defined as
a contract between two parties where one party
(the less or) provides an asset for usage to another
party (the lessee) for a specified period of time, in
return for specified payments. Leasing, in effect,
separates the legal ownership of an asset from the
economic use of that asset. Leasing is a medium-
term financial instrument for the procurement of
machinery, equipment, vehicles, and/or
properties. Leasing provides financing of assets-
equipment, vehicles-rather than direct capital.
Leasing is based on the proposition that profits
are earned through the use of assets, rather than
from their ownership. It focuses on the lessees
ability to generate cash flow from business
operations to service the lease payment, rather
than on the balance sheet or past credit history.
This is why leasing is particularly advantageous
for new, small and medium-size businesses that
do not have a lengthy credit history or a
significant asset base for collateral. Furthermore,
the lack of a collateral requirement with leasing
offers an important advantage in countries with
weak business environments, particularly those
with weak creditors rights and collateral laws
and registries, for instance, in countries where
secured lenders do not have priority in the case of
default.
With both leasing and bank financing involving
credit decisions and financial risks, the key
differences are that two additional factors apply
to leasing companies: First, they have knowledge
of the asset (and often the industry), and hence
are lending to some degree on an asset basis. This
is different from collateral-based lending,
however, in that they are lending based on the
ability of the asset to contribute to cash flow
(either to the lessee or in case of forced
sale/liquidation). Banks and other lenders tend to
look at the balance sheet value of collateral. The
second is that leasing companies are more sales
and service oriented-they are using their
specialized knowledge to bridge the gap between
suppliers and purchasers, and the specialized
knowledge of leasing companies may also give
them an advantage in disposing of the
repossessed leased assets. Suppliers are generally
not specialists in finance or credit decisions, while

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lessees are not specialists in finance or equipment
acquisition; leasing companies specialize in
finance, credit and equipment acquisition and
disposal (equipment dealing). In effect, both the
supplier and the lessee are outsourcing certain
portions of their business to a service provider
that also happens to have a certain capacity to
borrow and lend money.
Leasing in Emerging Economies
Emerging economies face several challenges,
including the need for investment. This is
compounded by an under-capitalized banking
system that is only able to offer its potential
clients a limited range of products. In turn, small
and medium-size companies possess insufficient
collateral or credit history to access more
traditional bank finance. This results in a
shortage of credit available to domestic
entrepreneurs. Thus, development of the leasing
sector as a means of delivering finance increases
the range of financial products in the marketplace
and provides a route for accessing finance to
businesses that would otherwise not have it, thus
promoting domestic production, economic growth,
and job creation.
Bangladesh is a developing country, but the
national calamity and political unrest sluggish
the industrial growth as well as economic growth
of the country. In spite of all these hindrance the
growth of leasing companies is a significant
indication of our bright prospects. The traditional
sources of funds of our country in the financial
market are the Commercial Banks and the stock
exchange. But these sources are not enough to
effectively meet the growing demand of capital
investments for industrialization of the country.
At the backdrop of such scenario, leasing
companies came forward in the 80s to serving as
an alternative source of financing. The leasing
sector has contributed significantly in spite of
many constrains like tremendous competition
with the banking sector of the country, challenges
and regulatory changes (withdrawal of
depreciation allowance) which are affecting
adversely on the business. With the Challenges of
time, the overall growth of the leasing business,
achieved through diversification of products and
services and aggressive marketing, is remarkable.
During the year 2008they have executed leases
and disbursed loan aggregating Tk.39.59 billion,
which is around33% growth compared to its
previous year.Lease financing, as organized in
Bangladesh, operates with the following
objectives: (a) to assist the development and
promotion of productive enterprises by providing
equipment lease financing and related services;
Chowdhury Sarahat S |Sep. 2014 | Vol.1| Issue 5|01-13
(b) to assist in balancing, modernization,
replacement and expansion (BMRE) of existing
enterprises; (c) to extend financial support to
small and medium scale enterprises; (d) to
provide finance for various agriculture equipment;
and (e) to activate the capital market by operating
as managers to the issue, underwriters, or
portfolio managers. The functions of a lease
business include lease financing, short-term
financing, house building financing, and merchant
banking and corporate financing. In this last
group of functions, the leasing business in
Bangladesh moved away from regular leasing
activities and is now involved in stock-market
related activities such as issue management,
underwriting, trust management, private
placement, portfolio management, and mutual
fund operation. Broad capital market operations
of the lease financing institutions include bridge
financing, corporate counseling mergers and
acquisition, capital restructuring, financial
engineering, and lease syndication. Prominent
among the sectors of the economy that now
receive lease financing services are textiles,
apparels and accessories, transport, construction
and engineering, paper and printing,
pharmaceuticals, food and beverage, chemicals,
agro-based industries, telecommunications, and
leather and leather products. Thus, the leasing
business has proliferated significantly to support
the growth of the overall economy. Based on this
remarkable development of leasing industry of
Bangladesh, we have attempted to analyze the
performance of leasing industry of Bangladesh
during the period 2007 to 2011 through this
article.
The rest of the article is structured as follows:
Section 2 builds on the literature review, detailing
work done previously on prospects of leasing
businesses, their growth and constraints; Section
3 explains the objective of this paper. Section 4
explains the data and research methodology that
are utilized in this paper, Section 5 reports the
findings of this paper along with the analysis and
Section 6 recommends and concludes, referring to
fields to work on in future.
Literature Review
Leasing is often considered to be a more accessible
means of finance than traditional debt. This is
particularly true for those companies with low
current returns but with high growth
opportunities, such as SMEs. Lasfer and Levis [1]
have found that the reasons for using leasing
depend on the size of the company and that in
small firms the leasing decision is driven more by
growth opportunities than by taxation
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considerations, the latter being one of the main
reasons that larger companies chose leasing.
Results also show that leasing allows smaller
companies to survive as small, less profitable
companies are more likely to lease than cash
generating firms. The leasing companies have
provided good returns and have contributed to the
development of the host countries. They mobilized
substantial funds from commercial sources-in one
case, over 100 times the amounts provided over
the years by IFC itself. They effectively allocated
resources to private enterprises and contributed
to the development of domestic capital markets.
And they responded to two of IFC's special
concerns-assisting small businesses, and assisting
small or low-income countries, like Botswana,
Malawi, and Bangladesh. The FASB recognized
this growth and commented as follows:
Leasing as a means of acquiring the right to use
property has proliferated markedly throughout
the post-war period. But it was the decade of the
1960s that saw the greatest expansion, not only in
the volume of leasing transactions, but also seen
the variety of application and degree of
sophistication of the techniques employed. During
the period, according to some estimates, leasing
grew at an average annual rate of between 15
percent and 20 percent. It was estimated that
over Tk. 11 billion in new equipment was leased
in 1974 and that by the end of 1975 equipment on
lease would be Tk. 100 billion.
The development of leasing companies has been
hindered by the absence of appropriate rules. The
leasing companies cant spread its operation due
to the unawareness about the lease financing
among the manufacturers, traders and service
companies. The leasing companies do not get
funds from Government at lower rate of interest.
Other problems include repossession problem,
default culture, intense competition from
traditional financing source and competition
among leasing firms. Khaleda [2] observed that
cost of fund is high in case of leasing firms in
comparison with their counterparts i.e. banks and
other financial institution. In Bangladesh the
leasing companies faced competition from two
areas (a) competition from traditional source
financing and (b) competition from leasing
companies. The major DFIs who provide term
lending are all owned by government and
majority of population still maintain their
banking transaction with commercial banks, and
Banerjee and Mamun [3] showed that weighted
average cost of fund for the leasing companies is
always positioned much higher than that of
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banks. According to their study, cost of funds for
leasing companies varied between 8.4 to 15.3
percent while that of banks was between 8.5 to
9.5 percent, which is almost half of that of leasing
corporations.
Choudhury [4] argued leasing sector needs more
attention both from Bangladesh Bank and
Ministry of Finance so that they may have access
to low cost credit lines for carrying on the leasing
business with the objective to contribute to the
overall industrial growth of the economy.
Operation by banks in what have been traditional
non-banking areas is often questioned by NBFIs
although both can act as complementary to each
other rather than being competitors.
Bangladesh Lease and Finance Companies
Association (BLFCA) alleged that commercial
banks of the country are engaged in non-bank
finance activities within the existing banking
rules, which is posing difficulties for non-bank
financial institutions. This is because by having
access to cheaper rate funds, banks have a
comparative advantage over NBFIs that does not
ensure proper competition for both. Again, it is
argued that if banks continue in the leasing
business then the default culture of the banking
system may also infect the leasing industry [5].
Chen [6] has observed that commercial banks
worldwide are directly or indirectly involved in
activities such as leasing, hire purchase, term
lending, house financing and capital market
operation. In developed countries commercial
banks are also actively involved in different
activities other than banking. In Turkey, banks
are empowered to arrange lease finance by virtue
of special laws relating to this particular activity.
Following the deregulation of the local banking
system as well as diversification of business, a
number of banks in Taiwan established their own
independent leasing companies. In India,
commercial banks are permitted to transact
leasing business through subsidiaries. In
Bangladesh, commercial banks started their
leasing operation effectively in 1995 [3].
Though banks and leasing corporations compete
with each other they can also perform
complementary functions. As suggested by Jamal
[7] and Sarker [8], to function as complementary
institutions both banks and leasing corporations
should follow some ethical and technical norms.
Banks wishing to enter in the leasing business,
which is essentially a core operation of leasing
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corporations, should do so through opening lower
subsidiaries so that a level playing field for
leasing corporations can be maintained.
Objectives of the Study
The objectives of the study are as follows:
To appraise the financial performance & identify
the determinants of Net Income of Leasing
Corporations in Bangladesh
To Identify the problems of Leasing
Corporations in Bangladesh
To suggest remedial measures to the
development of Leasing Corporations in
Bangladesh
Research Methodology
Scope of the Study
We concentrate our study to evaluate the
performance of Dhaka Stock Exchange listed
leasing companies during the year 2007 to 2011.
At present there are seven specialized leasing
companies which are enlisted in Dhaka Stock
Exchange and we have included all those
companies for our study. The selected companies
are: Industrial Development Leasing Company of
Bangladesh Limited (IDLC), Bay Leasing and
Investment Limited (BLIL), International Leasing
and Financial Services Limited (ILFSL), United
Leasing Company Limited (ULCL), Peoples
Leasing and Financial Services Limited (PLFSL),
First Lease International Limited (FLIL) and
Premier Leasing International Limited (PLIL).
Sampling Procedures
The research is based on the published financial
statements. Companies listed in DSE under the
Financial Institutions industry is considered as
the population for the study. Out of 22 listed
financial companies, we have selected those
companies whose major activities consists of lease
financing, which is reflected by the word
Leasing in the name of the companies. Only
seven companies (32%) are chosen as the sample
for the study. Thus, the sampling methodology
was purposive. The relevant data and information
were collected from annual reports of respective
leasing companies, Bangladesh Bank, Bangladesh
Securities and Exchange Commission,
Bangladesh Leasing and Finance Companies
Association, Bangladesh Bureau of Statistics,
Ministry of Finance and websites of relevant
corporations in Bangladesh. In this article we
have analyzed the different data of leasing
corporations in Bangladesh during the period
2007-2011. For evaluating these corporations
performance, these data has been analyzed
through the various statistical measures like
Chowdhury Sarahat S |Sep. 2014 | Vol.1| Issue 5|01-13
growth percentage, multiple regression, square of
correlation coefficient (r2), correlation matrix etc.
Research Design
This paper has evaluated the performance of
leasing business in Bangladesh in two parts.
Firstly, some company specific variables like
branches, employees, deposits, lease, loan &
advances, investments, total operating income,
total operating expenses, net profit, EPS, NAV
have been chosen to analyze the performance of
the selected leasing firms through various
statistical measures like growth percentages,
comparison of ratios etc. Secondly, a multiple
regression model has been develop to identify the
relationship of the determinants of net income, as
it is a major indicator of company profitability.
This paper also focus light to diagnose any multi-
collinerity of the selected parameters.
Specification of Regression Model
Dependent and Explanatory Variable
Firms profitability is measured by Net income
and the explanatory variables chosen for the
study are branches, deposits, lease and advances,
total operating income and total operating
expenses. We have tried to observe whether the
leasing firms profitability is influenced by these
factors or some other parameters are influencing
the firms profitability.
Measurement of Variables with Operational
Definition
Measurement of data is very important to select
the statistical tools to be used and to understand
the suitability of the tools. Due to the typical
nature of leasing business, it is also important to
define the selected variables operationally so that
no confusion arises among the readers. Thus, the
following model is considered for testing the
relationship assumed in the study.
Net Income (Y) = + 1Branch + 2Deposit +
3Loan + 4 OpInc + 5 Opexp (1)
Here,
Y= Net income = Constant
1 = Coefficient of Branch2= Coefficient of Deposit
3=Coefficient of Lease, Loan and Advances4 =
Coefficient of Operating Income
5 = Coefficient of Operating Expense
Results
This section now turns to explain and analyze the
results obtained from calculation. The first part of
this section explain each individual tables for
particular variables over the period 2007-2001 to
analyze the performance of leasing firms. The
second part of this section will examine the
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relationship of the variables which are chosen as Analyzing the Performance Based on
determinants of leasing firms profitability. Growth Rates and Ratios of Company
Specific Variables

Table 1: Number of Branches of Selected Leasing Companies of Bangladesh

S.N. Name of Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh Ltd. 6 8 10 12 15
(IDLC)
Growth (%) - 33 25 20 25
2 Bay Leasing & Investment Ltd.(BLIL) 1 1 1 1 1
Growth (%) 0 0 0 0
3 International Leasing & Financial Services Ltd.(ILFSL) 1 1 1 1 1

Growth (%) - 0 0 0 0
4 United Leasing Company Ltd.(ULCL) 5 5 6 10 13
Growth (%) - 0 20 66 30
5 Peoples Leasing & Financial Services Ltd. (PLFSL) - 1 1 1 1
Growth (%) - 100 0 0 0
6 First Lease International Ltd. (FLIL) 2 2 2 2 2
Growth (%) - 0 0 0 0
7 Premier Leasing International Ltd.(PLIL) 1 1 1 2 3
Growth (%) - 0 0 100 50
Source: Annual Reports of Leasing companies of Bangladesh (2007-2011)
growth has been observed for branch expansion in
Table 1 shows the growth of branches. The growth 2007 which was reduced to 20% in the year 2010.
of branches was the highest in 2008 for PLFSL IDLC has the highest number of branches of 15 in
and in 2010 for PLIL, which was 100% in both the 2011. ULCL and PLIL did not increase their
year for both the companies. On the other hand, number of branches during 2007 and 2008, where
the growth of branches of BLIL, ILFSL, and FLIL in subsequent years they have opened up
were stagnate during 2007 to 2011. For IDLC 33% branches slowly.

Table 2: Number of Employees of Selected Leasing Companies of Bangladesh

SN Name of Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh 168 207 335 486 559
Ltd.(IDLC)
Growth (%) - 23.21 61.84 45.07 15.02
2 Bay Leasing & Investment Ltd.(BLIL) 28 33 31 32 36
Growth (%) - 17.86 (6.06) 3.22 12.5
3 International Leasing & Financial Services Ltd.(ILFSL) 42 50 54 56 58
Growth (%) - 19.04 8 3.70 3.57
4 United Leasing Company Ltd. (ULCL) 89 128 127 175 196
Growth (%) - 43.82 (0.78) 37.79 12
5 Peoples Leasing & Financial Services Ltd.(PLFSL) 44 60 64 69 76
Growth (%) - 36.36 6.67 7.81 10.14
6 First Lease International Ltd.(FLIL) 22 22 42 65 80
Growth (%) - 0 90.91 54.76 23.07
7 Premier Leasing International Ltd.(PLIL) 36 39 35 62 89
Growth (%) - 8.33 (10.26) 77.14 43.54
Source: Annual Reports of Leasing Companies of Bangladesh (2007-2011)

Table 2 shows the growth of employees. IDLCs in 2009 which was almost 91%. It has been also
manpower strength was highest in 2011, which observed that BLIL, ILFSL, ULCL, PLFSL, PLIL
were 559. On the other hand, the highest growth faced declining growth rate in manpower strength
rate in manpower strength was observed by FLIL during the year 2008 and 2009.

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Table 3: Deposits of Selected Leasing Companies of Bangladesh (Million BDT)

SN Name of Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh 8092 8779 10360 13001 17639
Ltd.(IDLC)
Growth (%) - 8.49 18.01 25.49 35.67
2 Bay Leasing & Investment Ltd.(BLIL) 1379 1431 1503 827 1038
Growth (%) - 3.77 5.31 (44.97) 25.51
3 International Leasing & Financial Services Ltd.(ILFSL) 3834 4518 7175 8407 7939
Growth (%) - 17.84 58.81 17.83 (5.56)
4 United Leasing Company Ltd.(ULCL) 3528 3740 4314 4511 5098
Growth (%) - 6.01 15.35 4.57 13.01
5 Peoples Leasing & Financial Services Ltd.(PLFSL) 1450 2087 2957 4911 5848
Growth (%) - 43.93 41.68 66.08 19.07
6 First Lease International Ltd.(FLIL) 236 266 389 414 955
Growth (%) - 12.71 46.24 6.42 130.67
7 Premier Leasing International Ltd.(PLIL) 1391 1850 2166 2276 2589
Growth (%) - 32.998 17.081 5.07 13.75
Source: Annual Reports of Leasing Companies of Bangladesh (2007-2011)

Table 3 shows the growth of deposits. During amount of deposit was highest for IDLC, which
2007 to 2011 every year the deposit of IDLC, was BDT 17639 million in the year 2011, whereas
ULCL, PLFSL, FLIL and PLIL has been the highest growth in deposit was observed for
increased from the previous year. The total FLIL in the year 2011 which was 130.67%.

Table 4: Total Lease, Loan and Advances of Selected Leasing Companies of Bangladesh (Million BDT)

SN Name of Company Year

2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh 12081 14008 15078 21214 26357
Ltd. (IDLC)
Growth (%) - 15.95 7.64 40.69 24.24
2 Bay Leasing & Investment Ltd. ( BLIL) 2366 2527 3437 3585 3969
Growth (%) - 6.80 36.01 4.31 10.71
3 International Leasing & Financial Services Ltd. (ILFSL) 3395 3122 3421 3010 2729
Growth (%) - 0.76 16.63 (12.01) (9.33)
4 United Leasing Company Ltd. (ULCL) 7175 7264 7212 7595 7866
Growth (%) - 1.24 (0.72) 5.31 3.57
5 Peoples Leasing & Financial Services Ltd. ( PLFSL) 3527 5137 7412 12313 13803
Growth (%) - 45.65 44.29 66.12 12.10
6 First Lease International Ltd.(FLIL) 1123 1168 1327 1715 2642
Growth (%) - 4.01 13.61% 29.23 54.05
7 Premier Leasing International Ltd. (PLIL) 3422 4350 4522 3752 4273
Growth (%) - 27.12 3.95 (17.03) 13.88

Table 4 shows the growth of lease, loan and
advances by leasing companies of Bangladesh. It
has been observed from the table that in most of
the years during 2007 to 2011, disbursement of
lease, loan and advances has been increased from
the previous year in IDLC, BLIL, ULCL, PLFSL
FLIL and PLIL. However, the growth rate pattern
is not steady. It shows a fluctuating trend for the
lease, lean and advances of the selected leasing
companies in Bangladesh.

Table 5: Loan to Deposit Ratio of Selected Leasing Companies of Bangladesh (Times)

SL Name of Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of
Bangladesh Ltd.(IDLC) 1.493 1.596 1.455 1.63 1.49
2 Bay Leasing & Investment Ltd.(BLIL) 1.716 1.642 1.536 3.05 3.46

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3 International Leasing & Financial Services
Ltd.(ILFSL) 0.886 0.691 0.477 0.3850 0.3475
4 United Leasing Company Ltd.(ULCL) 2.033 1.942 1.671 1.68 1.54
5 Peoples Leasing & Financial Services Ltd.(PLFSL) 2.432 2.4614 2.506 2.51 2.36
6 First Lease International Ltd.(FLIL) 4.7584 4.391 3.411 4.14 2.77
7 Premier Leasing International Ltd.(PLIL) 2.460 2.351 2.087 1.62 1.63
Source: Annual Reports of Leasing Companies of Bangladesh (2007-2011)

Table 5 shows growth of loan to deposit ratio of
leasing companies of Bangladesh. It has been
observed from the table that IDLC, BLIL, ULCL
has disbursed more than one and a half times
loans compared to their deposits, whereas PLFSL,
FLIL and PLIL have disbursed loan more than
two times of their deposit base. The highest loan
to deposit ratio was observed for FLIL in the year
2007 which was more than four times.

Table 6: Investments of Selected Leasing Companies of Bangladesh (Million BDT)

SN Name of Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh 437 350.5 532.8 575.50 550.69
Ltd.(IDLC)
Growth (%) - (19.79) 52.01 8.01 (4.31)
2 Bay Leasing & Investment Ltd.(BLIL) 580 408 750.6 986 1170
Growth (%) - (29.66) 83.97 31.36 49.08
3 International Leasing & Financial Services Ltd.(ILFSL) 1164 1679 1773.5 1766 1098
Growth (%) - 44.24 5.63 (0.423) (37.83)
4 United Leasing Company Ltd.(ULCL) 165 105 75 158 92
Growth (%) - (36.36) (28.57) 110.66 (41.77)
5 Peoples Leasing & Financial Services Ltd.(PLFSL) 250 161 611 1208 818
Growth (%) - (35.60) 279.50 97.71 (32.28)
6 First Lease International Ltd.(FLIL) - 98 58 84 76
Growth (%) - 100 (40.81) 44.83 (9.52)
7 Premier Leasing International Ltd.(PLIL) 6 43 548 263 229
Growth (%) - 616.67 27.44 52 (12.93)
Source: Annual Reports of Leasing Companies of Bangladesh (2007-2011)
was made by FLIL in the year 2007. It has also
Table 6 shows the growth of investment in been observed from the table that the growth rate
government securities and others. ILFSL made pattern of investment made by the leasing
the highest amount of investment in 2009 which companies was not steady, it shows a fluctuating
was BDT 1773.5 million, where as in 2008 PLIL trend for all the selected leasing companies.
had experienced about 617% growth in their
investment from the previous year. No investment

Table 7: Total Operating Income of Leasing Companies of Bangladesh (Million BDT)

SN Name of Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh Ltd.(IDLC) 883 1179 1913 3047 2160
Growth (%) - 33.52 62.26 59.28 29.11
2 Bay Leasing & Investment Ltd.(BLIL) 417 484 706 1334 779
Growth (%) - 16.06 45.86 88.95 (41.60)
3 International Leasing & Financial Services Ltd.(ILFSL) 1035 1264 1672 2273 2083
Growth (%) - 22.13 32.28 35.94 (8.35)
4 United Leasing Company Ltd.(ULCL) 387 419 447 590 633
Growth (%) - 8.27 6.68 31.99 7.28
5 Peoples Leasing & Financial Services Ltd.(PLFSL) 273 412 598 1386 1026
Growth (%) - 50.92 45.15 131.77 (25.94)
6 First Lease International Ltd.(FLIL) 185 250 246 314 377
Growth (%) - 35.13 (1.6) 27.64 20.06
7 Premier Leasing International Ltd.(PLIL) 149 162 198 280.4 281.8

Growth (%) - 8.72 22.22 41.61 0.50

Source: Annual Reports of Leasing Companies of Bangladesh (2007-2011)

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Table 7 shows total operating income of leasing operating income of all the selected leasing
company of Bangladesh. It has been observed that companies reduced in the year 2011 except ULCL,
every year during 2007 to 2010, total operating FLIL and PLIL. The most like reason is the stock
income of IDLC, BLIL, ILFSL, ULCL, PLFSL and market crash in 2010 that affected all the
FLIL and PLIL has been increased from previous institutions.
year. However, in the year 2011, the total

Table 8: Total operating expenditure of selected leasing companies of Bangladesh (In Million BDT)
SN Name of Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh 272 353 489 966 913
Ltd.(IDLC)
Growth (%) - 29.78 38.53 97.54 5.48
2 Bay Leasing & Investment Ltd.(BLIL) 12 14 32 44 56
Growth (%) - 16.67 128.57 37.5 27.27
3 International Leasing & Financial Services Ltd.(ILFSL) 920 1083 1365 1436 1933
Growth (%) - 17.72 26.03 5.20 34.61
4 United Leasing Company Ltd.(ULCL) 729 116 145 174 229
Growth (%) - (84.09) 25.00 20 31.61
5 Peoples Leasing & Financial Services Ltd.(PLFSL) 49 62 81 133 142
Growth (%) - 26.53 30.65 64.19 6.76
6 First Lease International Ltd.(FLIL) 109 145.5 145.2 141 249
Growth (%) - 33.49 (0.21) (2.89) 76.59
7 Premier Leasing International Ltd.(PLIL) 67 61 63 142 94
Growth (%) - (8.96) 3.28 125.39 (33.80)
Source: Annual Reports of Leasing Companies of Bangladesh (2007-2011)
was less than BDT 100 million whereas the
Table 8 shows total operating expenditure of amount exceeded more than BDT 100 million for
leasing company of Bangladesh. It has been other firms. The highest amount of operating
observed that the amount of total operating expenditure was incurred by ILFSL in the year
expenditure incurred by the leasing firms was 2011, which was BDT 1933 million.
significantly different. The amount of total
operating expenditure for BLIL, PLFSL and PLIL

Table 9: Total Operating Expenditure/Total Operating Income Ratio of Leasing Companies of Bangladesh
SN Name of Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh
Ltd.(IDLC) 30.80 29.94 25.56 31.70 42.27
2 Bay Leasing & Investment Ltd.(BLIL) 9.76 25.00 16.49 3.29 7.19
3 International Leasing & Financial Services Ltd.(ILFSL) 88.89 85.68 81.64 63.18 92.79
4 United Leasing Company Ltd.(ULCL) 78.30 27.68 32.44 29.49 36.17
5 Peoples Leasing & Financial Services Ltd.(PLFSL) 17.95 15.05 13.55 9.59 13.84
6 First Lease International Ltd.(FLIL) 58.92 88.18 85.92 44.90 66
7 Premier Leasing International Ltd.(PLIL) 44.97 37.65 31.82 50.64 33.35

total operating income. On the other hand, for

Table 9 shows total operating expenditure/total
operating income ratio. It has been observed that
the ratio IDLC, BLIL, PLFSL and PLIL was less
than fifty percent during the period 2007 to 2011,
which indicated that these companies operating
expenditures were half or less than half of their
ILFSL, FLIL and ULCL this ratio was higher
than fifty percent throughout the year 2007 to
2011. It indicates that these companies operating
expenditure level is higher compared to other
leasing firms.

Table 10: Net Income of Leasing Companies of Bangladesh (In Million BDT)
SN Name of Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh Ltd.(IDLC) 303 406 822 1327 500
Growth (%) 0 33.99 102.46 61.44 (62.32)

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2 Bay Leasing & Investment Ltd.(BLIL) 79 45 157 615 263
Growth (%) (43.04) 248.89 291.72 (57.23)
3 International Leasing & Financial Services Ltd.(ILFSL) 118 113 205 343 (56.58)
Growth (%) 0 (4.24) 81.42 67.32 (116.49)
4 United Leasing Company Ltd.(ULCL) 179 123 143 153 162
Growth (%) 0 (31.28) 16.26 6.99 5.88
5 Peoples Leasing & Financial Services Ltd.(PLFSL) 81 148 179 185 356
Growth (%) 0 82.72 20.95 3.35 92.43
6 First Lease International Ltd.(FLIL) 89.67 79.9 102.7 117.8 172.2
Growth (%) 0 (10.90) 28.54 14.70 46.18
7 Premier Leasing International Ltd.(PLIL) 50 61 45 47 74
Growth (%) 0 22.00 (26.23) 4.44 57.45

Source: Annual Reports of Leasing Companies of Bangladesh (2007-2011)

Table 10 shows the amount of net income earned
by the leasing companies and their growth rate. It
has been observed that during 2007 to 2011, all
the leasing firms have experienced net profit from
their operation except ILFSL. ILFSL have
experienced a net loss of BDT 56.58 million from
their operation in the year 2011. However, the
growth rate of the net income shows a fluctuating
trend for all the leasing companies. The highest
amount of net profit was earned by IDLC in the
year 2010 which was BDT 1327 million.

Table 11: Earnings Per Share of Leasing Companies of Bangladesh (In BDT)
SN Name of Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh Ltd. (IDLC) 126.22 162.55 273.96 22.12 5.05
Growth (%) 22.02 28.78 68.54 (91.57) (77.17)
2 Bay Leasing & Investment Ltd. (BLIL) 77.31 44.14 76.78 11.2 2.77
Growth (%) 84.55 (42.91) 73.95 (85.41) (75.26)
International Leasing & Financial Services Ltd.(ILFSL) 59.25 44.68 70.49 6.74 (0.56)
Growth (%) 4.89 (35.39) (12.96) (90.43) (108.31)
3
4 United Leasing Company Ltd. (ULCL) 68.63 66.25 61.41 7.16 2.31
Growth (%) 16.95 (15.99) 5.93 (88.34) (67.73)
5 Peoples Leasing & Financial Services Ltd. (PLFSL) 40.33 35.53 4.94 7.47 2.76
Growth (%) (8.05) (22.07) 38.95 51.21 (63.05)
6 First Lease International Ltd. (FLIL) 59 53.38 45.3 3.45 1.64

Growth (%) 28.65 (9.53) (15.14) (92.38) (52.46)

7 Premier Leasing International Ltd. (PLIL) 14.77 13.50 19.53 3.15 0.76
Growth (%) (25.40) (15.17) 55.87 83.87 (75.87)

Source: Annual Reports of Leasing Companies of Bangladesh (2007-2011)

Table 11 shows the earnings per share of the
leasing corporations of Bangladesh. It is observed
from the table there is no consistent pattern of
EPS of all the selected leasing companies except
for IDLC. In most of the time during 2007 to 2011
the EPS of all the leasing companies shows a
fluctuating trend. Only IDLC shows a consistent
pattern of their EPS and their EPS shows an
increasing trend during 2007 to 2011. In 2009
IDLC has achieved highest growth rate of 68.59%
for their EPS.

Table 12: NAV per share of leasing companies of Bangladesh ( In BDT)

SN Name of the Company Year
2007 2008 2009 2010 2011
1 Industrial Development Leasing Company of Bangladesh Ltd. (IDLC) 582.35 644.58 797.70 61.50 40.21
2 Bay Leasing & Investment Ltd. (BLIL) 370.29 414 394 40.67 31.42
3 International Leasing & Financial Services Ltd.(ILFSL) 301.08 299.31 317.70 24.89 12.08
4 United Leasing Company Ltd. (ULCL) 473.87 496.26 478.00 30.7 19.42
Peoples Leasing & Financial Services Ltd. (PLFSL) 154.89 145.66 170.75 30.95 20.44
5
6 First Lease International Ltd. (FLIL) 283.26 272.77 284.17 19.68 17.38
7 Premier Leasing International Ltd. (PLIL) 127.89 127.19 135.15 14.91 11.87
Source: Annual Reports of Leasing Companies of Bangladesh (2007-2011)

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Table 12 shows net asset value per share of
leasing companies in Bangladesh. NAV per share
was highest for IDLC throughout the year 2007 to
2009 compared to other leasing firms. During
these periods the NAV per share for PLFSL and
PLIL were lowest, which were less than BDT
200/= compared to other leasing firms. However,
NAV per share for all the selected corporation had
faced a significant drop down during the years
2010 and 2011 for the 2010 stock market crash.
This macroeconomic factor systematically affected
all the companies performance.
Examining the Relationships
In this section, the net income values of selected
companies are regressed with the chosen
parameter values to examine the possible
relationship among them. The chosen parameters
are branch, deposits, lease, loan and advances,
Table 13: Multiple regression model summary
Model R R Square
1 .911
a Predictors: (Constant), DEPOSIT, BRANCH, LOAN, OPINC, OPEXP
b Dependent Variable: NETINCOM
Table 13 includes the multiple correlation
coefficient, R, its square, R2, and an adjusted
version of this coefficient as summary measures of
model fit. The multiple correlation coefficient R =
0.911 indicates that there is high correlation
exists between the net income and those predicted
by the regression model. In terms of variability in
observed level of net income accounted for by our
fitted model, this amounts to a proportion of R2 =
0.830, or 83%. Since by definition R2 will increase
when further terms are added to the model even if
these do not explain variability in the population,
the adjusted R2 is an attempt at improved
estimation of R2 in the population. The index is
Table 14: ANOVA
Model Sum of
Squares
1 Regression 1911732.092
Residual 391562.030
Total 2303294.122
a Predictors: (Constant), BRANCH, DEPOSIT, LOAN, OPINC OPEXP
b Dependent Variable: NETINCOM
Table 14 represents the ANOVA table. The
ANOVA table also provides an F-test for the null
hypothesis that none of the explanatory variables
are related to disclosure index, or in other words,
that R2 is zero. In our test, we can see that the F
stat is 28.317. Assuming a significance level of 5%
( = 0.05), the critical F is 4.74. In our sample,
Chowdhury Sarahat S |Sep. 2014 | Vol.1| Issue 5|01-13
operating income and operating expenses.
Dependent variable is the Net income. The target
of the study is to examine whether these
parameters affect net income.
The fit of a multiple regression model can be
judged in various ways, for example, calculation of
the multiple correlation coefficients or by the
examination of residuals. Table 13 includes some
statistics to specify the fit of the model. A
measure of the fit of the model is provided by the
multiple correlation coefficients, R, defined as the
correlation between the observed values of the
response variable and the values predicted by the
model. The value of R2 gives the proportion of the
variability of the response variable accounted for
by the explanatory variables.
Adjusted R Square Std. Error of the
Estimate
.830 .801 116.1987
adjusted down to compensate for chance increases
in R2, with bigger adjustments for larger sets of
explanatory variables.
Use of this adjusted measure leads to a revised
estimate that 80.1% of the variability in level of
sophistication in the population can be explained
by the explanatory variables. The table also
provides an estimate of the standard deviation of
the error term (under std. error of the estimate).
Here we estimate the mean absolute deviation as
116.1987, which is small considering that the
range of variables under study.
df Mean Square F Sig.
5 382346.418 28.317 .000
29 13502.139
34
theF stat (= 28.317) is greater than the critical F.
As such, we can reject the null hypothesis and
conclude that all our independent variables as a
whole have an effect on net income. In addition,
significance F is 0, which is less than 0.05. This
also enables us to reject our null hypothesis that
our independent variables do not affect our
dependent variable.
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Table 15: Beta coefficients

The beta coefficient as mentioned in Table15 also
justifies that all of the explanatory variable
becomes significant.
Having concluded that all our independent
variables have an impact on our dependent
variable, we need to understand if our
independent variables are correlated with each
other. When independent variables are related
with each other, it represents multi-collinearity.
In table 15, the last two columns relate to
collinearity. The first column defines tolerance.
Tolerance is measured as 1 R2 (where R2
measures the amount of variance in the
independent variable in the multiple regression
explained by a combination of all the other
independent variables). Therefore, a small value
of tolerance (normally below 0.10) is a cause of
concern since it signifies that a large part of the
variance in the independent variable can be
explained by the other independent variables
(and therefore the independent variables can be
correlated). The other column under collinearity
relates to VIF variance inflation factor. It is
calculated as 1 /tolerance. As a rule of thumb, a
VIF of greater than 10 indicates a strong chance
of collinearity.
From the table, we can notice the variables
DEPOSIT and LOAN both have a tolerance level
below 0.10 and a VIF of greater than 10. For
DEPOSIT, a tolerance value of 0.04 indicates that
only 4% of the variation in DEPOSIT cannot be
explained by the other independent variables in
the model. Similarly for the variable LOAN, a
tolerance value of 0.07 indicates that only 7%
variation in LOAN cannot be explained by the
other independent variables. Hence, DEPOSIT
and LOAN needs further investigation since they
represent multi-collinearity.

Table 16: Collinearity diagnostics

a
Colline arity Diagnos tics

Condition Varianc e Proportions

Model Dimension Eigenvalue Index (Cons tant) BRANCH DEPOSIT LOAN OPINC OPEXP
1 1 4.782 1.000 .01 .01 .00 .00 .00 .00
2 .649 2.714 .00 .08 .00 .01 .01 .07
3 .350 3.698 .65 .03 .00 .00 .00 .01
4 .153 5.585 .03 .56 .00 .05 .08 .07
5 5.476E-02 9.344 .02 .26 .04 .07 .90 .13
6 1.146E-02 20.423 .28 .06 .95 .87 .00 .72
a. Dependent Variable: NETINCOM

dimension 5 (we are considering dimension 5

Table 16 represents data for collenearity because we have five independent variables).
diagnostics. From the colinearity Diagnostic table,
we can see that we have a very low eigenvalue for Also, the condition index for dimension 5 is very
high compared to the other dimensions. Both low

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eigenvalue and high condition index indicate sample. Multi-collinearity is pretty evident from
problems of multi-collinearity are present in our the coefficient correlation table also

Table 17: Coefficient correlations

Coe fficien t Co rre lationas

Model OPEXP BRA NCH LOA N OPINC DEPOSIT

1 Correlations OPEXP 1.000 .179 .814 -.384 -.764
BRA NCH .179 1.000 -.037 .258 -.379
LOA N .814 -.037 1.000 -.199 -.837
OPINC -.384 .258 -.199 1.000 -.179
DEPOSIT -.764 -.379 -.837 -.179 1.000
Covariances OPEXP 1.270E-02 .171 1.175E-03 -2.62E-03 -2.13E-03
BRA NCH .171 71.736 -4.01E-03 .133 -7.94E-02
LOA N 1.175E-03 -4.01E-03 1.641E-04 -1.54E-04 -2.66E-04
OPINC -2.62E-03 .133 -1.54E-04 3.673E-03 -2.69E-04
DEPOSIT -2.13E-03 -7.94E-02 -2.66E-04 -2.69E-04 6.136E-04
a. Dependent V ariable: NETINCOM

Normally, any correlation coefficient more than
0.7 or less than -0.7 is a cause of concern. As
mentioned above, we can see, there is correlation
between DEPOSIT and LOAN as well as
correlation of OPEXP with DEPOSIT and LOAN
(however, to the contrary the table shows weak
correlation between OPINC with DEPOSIT and
LOAN). DEPOSIT and LOAN have a negative
correlation of -0.837 (naturally, more loans, less
deposits and vice versa) while the correlation
between OPEXP with LOAN is 0.814 (more loans,
more operating expenditure and vice versa) while
with DEPOSIT the correlation coefficient is -0.764
(more deposit, less operating expenditure). All of
these variables are used to measure net income.
However, because of multi collinearity, we cannot
measure the correct impact of changes in these
variables on net income that we could measure if
we consider these variables individually to asses
each of these variables impact on net income.
Findings and Conclusion
It is reflected from the analysis that almost every
year most of the companies under study have
opened new branches. IDLC had the highest
number of branches in the year 2011, which were
15. However, all the companies should open up
more new branches to provide more
comprehensive services to the entrepreneurs of
Bangladesh. The leasing companies have created
employment opportunities. However, from the
analysis we have found that both the leasing
companies are still not able to attract the labor
pool that they supposed to. This is because still
now peoples in Bangladesh are more familiarize
with traditional financial institutions like banks
and a significant portion of fresh graduates prefer
to do jobs in banks compared to leasing
companies. Another reason is their employee
retention packages of most of the firm under
study (except IDLC) are not so attractive
compared to banks. Skilled and trained human
resource is considered as an important component
for the development of any institution. Due to the
recent growth of leasing corporations, availability
of experienced manpower is a challenge for this
industry.
The supply shortage of efficient resource
personnel has been leading to a significant
increase in the compensation package, which is
also a cause of concern for leasing corporations.
The industry experts believe that although there
remains enormous growth opportunity the market
is still quite small and scope of work for skilled
personnel is very limited compared to that of
banks. This makes the competent personnel to
switch from leasing corporations to other
institutions after a certain period implying low
retention rate of skilled human resource. If the
leasing firms can create systems which will
attract more talented and skilled workforce, then
this industry can grow faster.
From the analysis it is reflected that the deposits
of all the leasing companies under study has not
shown a steady growth rate. They are allowed to
take deposits directly from the public, as well as
from institutions. According to the central bank
regulation, leasing companies have the restriction
to collect public deposits for less than one year,
which creates uneven competition with banks as
banks are also exploring the business
opportunities created by leasing companies with
their lower cost of fund. In this study, we have
observed that BLIL and ILFSL had faced negative
growth rate under the period of study, but FLIL
had faced a growth rate of 131% in the year 2011.

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It can be assumed from this analysis that people
feel less confident in keeping their savings as
deposits in leasing companies. The general
preference of people for depositing their saving is
banks. In this regard, the leasing firms under
study have to manage their funds properly and
invest in assets by minimizing the risk. Also they
can design and develop new schemes for deposits
which will adapt to the needs of savers.
It is reflected from our analysis that all the firms
under study have distributed more lease, loan and
advances compared to their deposit base under
study. The loan to deposit ratio also revealed this
point. This is indeed a very important difference
from leasing companies and the traditional
commercial banks, whose loan is based on their
deposits. As stated earlier, the principal sources of
fund for leasing corporations are loan from banks
and deposits from institutions and individuals.
But these corporations face comparative
disadvantage in collecting funds compared to the
banks because leasing corporations cannot collect
short term (less than one year) deposits from
individuals due to the central banks restriction,
and again deposits in leasing corporations are
perceived to be less safe to the public. Default -
culture, which has plagued the country's banking
sector, could threaten the leasing companies also.
A substantial portion of the money advance to the
users could become either doubtful or bad. In this
regard leasing companies need to manage their
lease, loan and advances portfolio very efficiently
and cautiously. Leasing corporations are
permitted to undertake a wide array of activities
and should therefore not confine themselves to a
limited number of products only. Almost all the
leasing companies concentrated on equipment
leases to BMRE (Balancing, Modernization,
Replacement and Expansion) units only. New
industrial units were hardly brought under the
purview of leasing facilities. This implies that the
new customer base has not been created and the
growth of industrial entrepreneurship could not
be facilitated through these corporations
financing packages. Diversifying the product
range is a strategic challenge for leasing
corporations in order to become competitive in the
rapidly growing market.
The total operating income and the total
operating expenditure table shows that after 2010
most of the companies operating income were
declined or they have increased at a declining
rate. This is due to the 2010 stock market crash
by which overall all the companies performance
was affected. But the operating expenditure of
Chowdhury Sarahat S |Sep. 2014 | Vol.1| Issue 5|01-13
all the firms were incurred , it is reflected by the
total operating income/ operating expenditure
ratio that some of the leasing companies under
study had incurred as much high as 80% and
above operating expenditure to carry on their
operations. ILFSL has the highest total operating
expenditure/ total operating income ratio which
was 93% in the year 2011. This is indeed a very
important fact to consider about. Because for all
the firms, it is reflected in the study that the
expenditure level could not be minimized
significantly compared to the reduction in total
operating income. As a result, the profitability
(measured by net income and EPS) of all the firms
under study are affected. The net income of all
the leasing companies under study showed a
fluctuating trend from 2007-2010, but after 2010
IDLC, BLIL, ULCL had faced a decline growth
rate in their net income, whereas ILFSL had
incurred net loss in the year 2011. All the firms
EPS shows a fluctuating trend from the year 2007
till the year 2009. In the year 2010, EPS of IDLC,
BLIL, ILFSL, ULCL shows a declining growth
rate, whereas all the firms EPS showed a
declining growth rate in the year 2011. NAV per
share was highest for IDLC throughout the year
2007 to 2009 compared to other leasing firms.
During these periods the NAV per share for
PLFSL and PLIL were lowest, which were less
than BDT 200/= compared to other leasing firms.
However, NAV per share for all the selected
corporation had faced a significant drop down
during the years 2010 and 2011 for the 2010 stock
market crash. This macroeconomic factor
systematically affected all the companies
performance.
It is reflected in the study that though all the
leasing firms has faced some problems
individually, but most of the firms were affected
significantly by the stock market crash which
happened in Bangladesh in the year 2010, that
affected individual investors all the firms
performance significantly affected the profitability
of the firm. We have tried to analyze whether
individual variables like branch, deposits, loans,
operating income and operating expenditure were
affecting the net income. We have ended up with
the conclusion that branch, loan and operating
income affected positively, whereas deposits and
operating expenses affect the net income
negatively the net income ( as measured by the
beta coefficients). However, we have also faced the
problem of multi-collineraity, for which we could
not able to identify the exact impact of changes in
this variables on net income. However, if the
leasing firms can focus on these variables, then
definitely they can improve their profitability
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which will help them to sustain for a long period
of time.
The leasing is becoming more and more
competitive because of the new leasing companies
are entering the market. Still there remains a lot
of scope which these firms can explore. The
political stability and overall economic
development is an essential precondition of the
smooth growth of this sector. If these two
preconditions can be met, the leasing sector of
Bangladesh would be able to perform strong role
in our industrial development. The government
should also focus on leasing sector as a prominent
source of financing in addition to commercial
banks and other financial institutions and thus
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Chowdhury Sarahat S |Sep. 2014 | Vol.1| Issue 5|01-13
they (government) should more extends facilities
for the overall growth of this sector. Moreover, the
leasing firms should come up to give more precise
ideas and knowledge about lease among general
public. In addition to these, they should also focus
on their individual performance and should try to
overcome the problems and challenges that they
are facing for operating their business. We are
quite optimistic that if the given suggestions of
this paper are implemented by the leasing firms,
as well as by the government, then the leasing
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problems and may contribute in the rapid
development of the agricultural and industrial
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13