The country’s listed non-bank financial institutions (NBFIs) together witnessed a 60 per cent year-on-year profit slump in the first six months of 2023, driven by the regulatory change to interest and lending rate caps, triggering a downfall in interest income.
The NBFI sector’s total net profits in January-June 2023 stood at Tk 124 crore, which was 60.4 per cent lower than the profits of Tk 314 crore made in the corresponding period last year.
Meanwhile, the sector’s deposit growth decelerated in H1 of 2023 owing to inflationary pressures and severe competition from banks, which, coupled with certain loan anomalies, resulted in a financial strain in the sector, as per a report of EBL Securities, a stockbroker.
EBL Securities carried the report after evaluating the financial performance of 23 listed NBFIs in Bangladesh.
The listed 23 non-banks’ annual profit after taxes stood at Tk 314 crore in 2022, up 2.6 per cent from Tk 306 crore in 2021.
Most leading NBFIs, including IDLC Finance, IPDC Finance, LankaBangla, Bangladesh Finance, DBH Finance, and National Housing Finance reported less-than-expected net profits in the current year’s January-June half.
Some NBFIs registered negative growth during the period, primarily due to declining net interest income and higher provision allocated against non-performing loans, as per EBL Securities report.
Of them, DBH has shown comparatively a modest negative growth, with its net profit experiencing a contraction of 10.7 per cent during the period.
In the first half this year, DBH, IDLC, and NHFIL stood out as top performers in terms of generating earnings per share (EPS). They recorded EPS of Tk 2.46, 1.74, and 1.05, respectively for the period.
The sector’s investment income declined by 19.1 per cent YoY in 2022 and 34.3 per cent YoY in H1 of 2023, owing to the lackluster capital market performance during this period, EBL Securities said.
Exchange, commissions, and brokerage income also exhibited a 10 per cent YoY contraction in 2022, which was 26.3 per cent YoY in H1 of 2023.
In the first six months of 2023, listed NBFIs provisioned Tk 169 crore against classified loans, compared to Tk 468 crore in the same period last year.
The total provision was Tk 765 crore against classified loans in 2022, which was Tk 789 crore in 2021.
Provision against classified loans declined primarily due to several initiatives by the central bank, such as the scheduling facility for defaulted loans up to 21 years in four phases, renewing loans with only a 4 per cent down payment in the first phase, according to the EBL Securities report
IDLC Finance posted a 21 per cent year-on-year decline in net profit in H1 of the current year, thanks to a fall in net interest income.
The publicly traded company’s net profit fell to Tk 72.33 crore in January–June 2023 from Tk 91.87 crore reported in the same period one year ago.
The earnings slumped owing to a fall in net interest income, investment income, commission exchange and brokerage, and other operating incomes, said IDLC.
Another leading non-bank financial institution, IPDC Finance Limited’s profit after taxes stood at Tk9.5 crore, a 78 per cent year-on-year fall, in the January-June period this year compared to that in the same period last year.
Market experts said the NBFI sector went through a tough time in the first half of 2023 due to pressure to pay more interest against collected funds and the inability to charge their borrowers more because of the lending rate cap.
The spread—the difference between borrowing and lending rates—came down to a historic low of less than 1 per cent for the overall NBFI industry and less than 3 per cent for top-tier firms, they said.
LankaBangla Finance Limited posted a 43 per cent decline in its consolidated annual profits in the first six months of the ongoing year. The company’s profit after taxes stood at Tk 18 crore in H1 of 2023, which was Tk 31.7 crore in the same period one year earlier.
LankaBangla said in an official disclosure that its earnings decreased due to a reduction in interest income triggered by the imposition of a rate cap by the regulator, an increase in provision due to slightly deteriorated asset quality, and a decrease in commission, exchange, and brokerage income due to the declining average turnover in bourses.
Bangladesh Finance, another leading NBFI, reported a huge decline in net profit in the first six months of 2023 due to a fall in net interest income and lower investment returns.
The company posted a net profit of Tk 5.53 crore in the first six months (January–June) of 2023, which was nearly 70 per cent lower than the profit of Tk 18.20 crore made in the corresponding period last year.
DBH Finance PLC, a housing finance institution, reported a profit decline of 10.5 per cent year-on-year in the first six months of 2023. The company posted Tk 49 crore in net profit in the January-June period this year, compared to a profit of Tk 54.8 crore in the same period last year.
Another publicly traded NBFI, National Housing Finance and Investments Limited, saw its profit decline by 20 per cent in the first half of this year. Its net profit stood at Tk 12 crore at the end of June this year, compared to Tk 15 crore in the same period last year.
The Bangladesh Bank has taken several initiatives to enhance governance in NFBI sector, which include a mandatory pre-audit for loans exceeding Tk 1 crore, the launch of a digital management information system for monitoring loan approvals, provision for loan rescheduling up to 21 years for defaulted loans in four phases, and the renewal of loans with a mere 4 per cent down payment in the first phase. T
These efforts are expected to ameliorate the waning trust in this sector.
Bangladesh Bank has also shifted from the previous interest rate cap to a market-based reference lending rate regime where the lending rate for the NBFIs will be determined by adding a 5 per cent margin to the reference rate.
This shift is expected to widen the interest rate spread and positively impact the net interest margin in this sector.
