Profitability of non-banking financial

institutions of Bangladesh

1. Overview
 NBFIs of our country offers multifaceted financial services in the market which
are not provided by banks.
 Their diversified product portfolio includes lease financing, term lending,
house financing, venture capital financing, equity financing, project financing,
merchant banking, financing to pilgrimage and many more.

2. Objective of the Study

General Objective: The study focuses on determining the profitability position of
financial institutions sector in Bangladesh based on the performance analysis of
some selected companies.
Specific Objective:
i. To analyze the profitability position of selected financial institutions in
Bangladesh.
ii. To analyze the factors influencing the profitability of selected financial
institutions in Bangladesh.
iii. To evaluate the various aspects of operations and make practical
recommendation for reinforcing the sector’s prosperity.
iv. To ascertain abnormal returns of the stocks of each company for assisting
investors in their investment decision making.
3. Scope of the Study
 The study aims at providing assistance to the companies in evaluating their
financial efficiency and the investors in analyzing their investment decisions.
 It aims to help the management to find out its financial problems at present
and the specific areas in the business.
4. Methodology
Data Source:
i. Secondary research has been conducted
ii. The secondary sources that were used to get some picture on the research
topic include:
 Annual Reports of the companies under study from the Year 2012 to 2016
DSE Data Archive
Reports related to stock exchange
Online Articles and Publications
Newspaper
Journals
Official website of the selected companies
Data Analysis:
i. Ratio analysis and interpret the significance of various items to assess the
profitability positions of the selected financial companies.
ii. A comprehensive analysis has been carried out by applying statistical
techniques namely mean, standard deviation, co-efficient of variance.
Analysis of Profitability of Financial Sector:
i. Net Interest Margin
ii. Net Profit Ratio
iii. Operating Profit Ratio
iv. Return on Equity
v. Earnings Per Share

Analysis of Investment Decision

Jensen’s Alpha or abnormal returns for the stocks of all the 10 companies have been
determined for analyzing investors’ investment decision.
5. Findings and Analysis
A. Net Interest Margin:

I. It implies the high interest expense due to lack of optimal decision-

making and lesser interest income.
II. This variation in NIM over the time means that the companies’ loans
are vulnerable to weak economic condition.
III. FAS Finance & Investment has the highest standard deviation of net
interest margin of 1.27 percent.
IV. Good loans are most likely to be repaid despite the condition of
national or international marketplace
B. Net Profit Ratio:

I. This fluctuation indicates the company’s capacity to face adverse

economic conditions, namely, price competition, low demand and so
forth.
II. Bay Leasing & Investment has the highest average net profit ratio of
95.26 percent
C. Operating Profit Ratio:
Chart Title
Mean Standard Deviation Coefficient of Variation

4
2.9606
3

2 1.6464
0.7953 1.0261 0.9429 0.8023 0.9218 0.95 0.7909 0.6887
1 0.4545
0.0750.3095
0.0597 0.3017 0.1219
0.1149 0.0731 0.105
0.0968
0.0911 0.2636
0.2504 0.2760.1686
0.2132 0.0462
0.0318
0

-1
-0.8346
-2

-3

-4 -3.5471

I. This fluctuation implies the inability of keeping operating expenses

under proper control and supervision given the specific level of sales
achieved
II. Bay Leasing & Investment Limited has the highest average operating
profit ratio of 164.64 percent and Investment Corporation Of
 Bangladesh has the lowest average operating profit ratio of -354.71
percent
D. Return on Equity Ratio:
Chart Title
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

Mean Standard Deviation Coefficient of Variation

I. This fluctuation, according to Vijayalakshmi and Srividya (2014),

indicates profit earned by the company and those profits which can be
made non-available to pay dividends to equity shareholders.
II. Delta Brac Housing Finance Corporation has the highest average
return on equity capital ratio of 20.93 percent and Bay Leasing &
Investment has the lowest average return on equity capital ratio of
3.95 percent
E. Earnings Per Share:
Chart Title
8
7
6
5
4
3
2
1
0

Mean Standard Deviation Coefficient of Variation

 I. this fluctuation indicates whether or not the earning power of the
company has decreased.
II. Investment Corporation Of Bangladesh Limited has the highest
average earnings per share of 7.39 and FAS Finance & Investment
Limited has the lowest average earnings per share which is 0.69.
F. Actual Return:
G. Monthly Risk-free Rate:
The monthly risk-free rate has been calculated at 0.37 percent as of the year
2017.
H. Beta:
Beta
United Finance Limited
FAS Finance & Investment Limited

Bay Leasing & Investment Limited

Phoenix Finance and Investments Limited

Delta Brac Housing Finance Corporation…

Islamic Finance & Investment Limited

Investment Corporation Of Bangladesh…

IPDC Finance Limited

LankaBangla Finance Limited

IDLC Finance Limited
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8

I. Jensen’s Alpha:

I. It has been ascertained that the stocks of only two companies out of
the ten NBFIs are investable because their realized or actual returns
are higher than their expected returns.
II. these stocks have positive abnormal returns and hence they are
underpriced and are attractive investments.
 III. The two financial institutions which provide positive alpha or abnormal
returns to the investors are IPDC Finance Limited and Delta Brac
Housing Finance Corporation Limited.

6. Recommendations
I. The companies may concentrate on increasing transparency in credit
evaluation, interest income, loans, advances and leases and on improving
their profitability.
II. The companies need to implement financial innovation and may expand their
range of financial products and services. This will result in an upward trend in
their client base which will eventually increment their earnings.
III. Investors should invest on the stocks which provide them a positive abnormal
return as such stocks are underpriced and mitigate their risks and thereby
provide adequate returns on their investments