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Infographic: TBS

The non-bank financial institution (NBFI) sector in Bangladesh has been struggling with a huge amount of non-performing loans, a liquidity crisis, and an extreme squeeze in the NBFIs’ net interest margin in recent quarters.

A significant portion of the blame can be attributed to non-compliant firms that sunk due to non-compliance and embezzlement.

However, some top-tier firms having better corporate governance, winning strategies, and the financial strengths to weather tough times, clearly stood apart from their mediocre competitors and also to show a contrasting picture of the devastated NBFIs that were struggling to pay back depositors.

For instance, at the end of the challenging year 2022, publicly traded NBFIs’ average non-performing loans (NPLs) ratio skyrocketed to nearly 24% due to some extreme figures such as 89% bad loans of scam-hit International Leasing.

On the flip side, top-tier firms managed to arrest their NPLs within a 3% to 7% range, while home loan provider Delta-Brac Housing (DBH) Finance PLC succeeded in recovering more than 99% of its loans.

With similar strong performance in several key financial indicators followed by analysts, the specialised NBFI appeared to be the strongest before analysts’ eyes.

The research arm of brokerage firm EBL Securities released its “NBFI Sector Performance and Earnings Update” report at the end of August, awarding DBH Finance PLC an impressive score of 89.69 out of 100. According to the audited financial report for 2022, DBH Finance PLC’s business competitor, National Housing Finance and Investment, secured the third position among all NBFIs with a score exceeding 68.

Rayhan Ahmed, senior research associate at EBL Securities, said, “A relatively lower default rate in housing loans contributed to the high profitability and ranking of these two specialised NBFIs, reflecting their strong financial health.”

IDLC Finance Ltd, the largest NBFI in the country, secured the second position among all NBFIs by the end of 2022, maintaining its status as a champion among full-fledged NBFIs with a diversified business portfolio, earning a score of over 73.

EBL Securities analysts considered earnings per share, cost-to-income ratio, returns on equity, return on asset, operating profit margin, net interest margin, NPL control, and dividend yields as their evaluation criteria.

IPDC Finance, the fastest-growing NBFI that went through a significant transformation since the world’s largest non-governmental organisation BRAC acquired its major stake eight years back, stood second among the diversified NBFIs and fourth among all, securing a score of 59.73.

Bangladesh Finance, another NBFI going through a transformation in its business model and way of operations stood fifth among all as it scored 43.51.

Lanka Bangla Finance, the second largest NBFI, stood sixth as the devaluation of Taka last year hurt its financial performance to some extent by inflating its foreign currency liabilities.

United Finance with a score of 40.17 stood seventh among all NBFIs.

State-owned Investment Corporation of Bangladesh despite its 27.3% NPL managed to secure the eighth spot with a poor score of 27.4 out of 100.

In contrast, devastated firms such as International leasing or First Finance scored near to zero amid much more liabilities than assets.

In financial business, there may come short-term dents during adverse economic situations when borrowers’ payback declines or deposit becomes expensive to squeeze profit margin, said IPDC Managing Director and CEO Mominul Islam.

However, “Financial firms having strong risk management and good governance practices overcome and chase their vision,” he added.

He attributed his firm’s superior position to the socially committed business model and the priorities for sustainable growth.

National Housing MD and CEO Mohammad Shamsul Islam believes corporate governance and transparency are the biggest strengths of his firm which translates into financial strength.

Bangladesh Finance, once lagging due to investment losses, higher NPL in the dominant large corporate loans segment might not have appeared in the top ten if the ranking had been done before the pandemic.

Its MD and CEO Md Kyser Hamid thanked the transformation program it embraced during the pandemic for a stable business and efficient operations.

Hamid, also the vice chairman of the Bangladesh Leasing and Finance Companies Association, said less bank borrowing and more customer deposits, less large loans and more small loans, technology dependency for efficient, transparent operations alongside more partnership with a wide range of actors have been proved to be the winning tools in his industry.

DBH Finance PLC MD and CEO Nasimul Baten believes that the quality of loans disbursed and better liquidity is the preparation to pay back depositors at once together make the key difference and his firm in the last 18 years kept controlling the NPL within 1%.

The NBFI industry was facing an even harder time in the first six months of 2023 due to record low-interest rate spreads as deposit rates went higher and their lending rate was capped until the beginning of July, said Hamid.

NBFI industry’s net interest income, net profit, return on equity and assets and spread everything dropped in the first half of 2023.

Except for the two housing finance providers, each of the top NBFIs had a lower score at the end of June, if compared to that of six months ago.

However, the new central bank method for setting a dynamic cap for lending rate helped create a breathing space, he added.

Each of the CEOs was optimistic that with the economic hurdles over the well-governed firms would come back with higher profitability.

Echoing them, EBL Securities’ Rayhan Ahmed said the central bank’s execution of a market-based lending rate and governance enhancement initiatives could bring promising signs for a potential turnaround of the NBFI sector.

The IBN SINA Pharmaceutical Industry PLC has declared a record 60% cash dividend to its shareholders for the financial year 2022-23.  

The dividend declaration came from the company’s board meeting on Monday (28 August).

During the year, the consolidated earnings per share of the pharmaceutical stood at Tk19.38, which was Tk19.39 in FY2021 -22.

Its consolidated net asset value per share stood at Tk96.68 at the end of June 2023.

To approve the dividend and financial statement, it will conduct the annual general meeting on 22 October virtually, and the record date is set for 21 September.

Its share stood at Tk286.60 apiece on Tuesday at the Dhaka Stock Exchange.

Bangladesh will continue to enjoy duty-free access to Canada market till 2034 as per a bill passed in Canadian parliament in June. 

The Canadian government has extended duty-free market access to all developing countries that will benefit Bangladesh once it graduates from LDC status in 2026.

The market access, under the General Preferential Tariff (GPT) scheme, also includes relaxed rules of origin of apparel items and provides duty-free access to other products.

The new programme also proposes to extend this market access benefit based on labour and environmental compliance of the industries.

Welcoming the development, BGMEA President Faruque Hassan told The Business Standard that the Canadian parliament passed a finance bill on June 8, extending the GPT scheme until the end of 2034.

This policy decision will greatly support Bangladesh’s industry transformation towards a safer, cleaner, greener, and more sustainable workplace, as well as contribute to the overall infrastructure development in the country, he said.

“It’s time for us to take our bilateral trade to a new height, he added.

According to the EPB (Export Promotion Bureau) data, Canada was the 11th largest exporting partner of Bangladesh with a $1.72 billion export in FY23. Besides, the North American nation is one of the major markets for Bangladeshi apparel.

Bangladesh’s RMG export to Canada reached $1.55 billion in FY23, which was $1.33 billion the previous fiscal, showing 16.55% growth.

Faruque Hassan said, “We have a significant potential to further penetrate this market. With the GPT+ ahead, we should aim for a bigger pie and focus our efforts and resources to maximise this potential.”

Bangladeshi products have enjoyed complete duty-free and quota-free access in Canada since 2003 under the Least-Developed Country Tariff (LDCT) scheme which falls under the GPT.

“As the GPT scheme is being renewed every 10 years, the existing version of GPT is going to expire at the end of 2024,” said Faruque Hassan.

He also mentioned that the BGMEA has been actively pursuing the matter of a smoother transition after the LDC graduation takes effect with major trade partners.

“We have got positive feedback from the Australian Government officials regarding the continuation of duty-free market access after the graduation from LDC”, he said.

Shasha Denims Managing Director Shams Mahmud told TBS that this is good news for Bangladesh currently enjoys duty-free access to the Canadian market.

“However as Bangladesh fell under LDTC, we had to adhere to the rules of origin requirement where 25% value addition had to be shown to attain the GSP facilities,” Shams Mahmud said.

Now with the introduction of GPT+, all the restrictions will be replaced, he added.

These changes are promising for Bangladesh because the country strongly demonstrates that it fulfils all the criteria for social, environmental and safety aspects of the industry, Shams Mahmud opined.

Infographic: TBS

The shares of Himadri Ltd, listed on the SME platform of the Dhaka Stock Exchange (DSE), have surged over 59 times in the last four months without any valid reason influencing the price.

According to data from the DSE, the shares closed at Tk2,096.40 each on Wednesday, marking a 5,889% increase from Tk35 on 26 April.

As a result, its market capitalisation increased by 48 times to reach Tk142.94 crore on 23 August.

In May, the Dhaka bourse asked the company to explain the reason for the unusual share price hike. In response, it said its three directors sold some shares through the Chittagong Stock Exchange (CSE) in April. After that, there was no other information that might have influenced the price.

Company Secretary Jahirul Islam told The Business Standard, “We have no relation to the pricing of shares of the company in the secondary market of stock exchanges.”

According to the data, Himadri’s three directors Nahar Ahmed, Eshraq Raihan Ahmed and Eshtiaque Ahmed together sold 2.04 lakh shares of the company to comply with the securities regulator’s direction.

The company has only 7.50 lakh shares, where sponsors and directors held 65.72%, the government owned 1.48% and general investors held 32.80% as of 30 June.

In August last year, the Bangladesh Securities and Exchange Commission (BSEC) asked the company’s sponsors and directors to offload more shares in the secondary market of the SME platform.

Incorporated in 1974, Himadri Limited mainly provides cold storage facilities for agro-based products such as potatoes in the north of Bangladesh.

Currently, it has six potato cold storages in Rangpur, Bogura, Joypurhat, Thakurgaon, Gaibandha, and Dinajpur.

In September 2021, Himadri Limited was shifted from the over-the-counter (OTC) market to the SME platform. On the OTC market, the company’s shares were last traded on 8 March 2014.

If Bangladesh creates an economic corridor encompassing 14 northeast and southwest districts – from Khulna division to the northeast Sylhet and Mymensingh divisions via Dhaka, the region’s economic output could surge to $286 billion by 2050 from $32 billion in 2020, the Asian Development Bank has said.

Infographics: TBS

The international lender in its “Bangladesh Economic Corridor Development Highlights” released at a city hotel on Wednesday also said that the corridor is expected to generate 2.3 million additional jobs by 2025 and the number will gradually increase to 40.7 million by 2050.

Planning Minister MA Mannan attended the programme as chief guest, where economists and private sector representatives were also present.

The report says additional economic output and employment generation can be done by establishing 12 manufacturing industries in this economic corridor region.

The economic corridor would need infrastructures aligned with a major transport network, and connect urban clusters with vibrant industrial zones. It also aims to maximise the population benefiting from socio-economic development.

Currently, Bangladesh has its economic growth concentrated mainly in the Dhaka and Chattogram divisions, while other districts such as Khulna, Mongla, Sylhet, Rangpur, Netrokona, Sunamganj, Panchagarh, Nilphamari, and others are lagging behind lacking necessary resources to promote their growth.

Infographics: TBS

Edimon Ginting, country director of the ADB, said to address these challenges, Bangladesh needs a holistic development strategy that will facilitate structural transformation and improve welfare across the country.

“An economic corridor is one such integrated development tool that enhances infrastructure, enables industrial proliferation, creates employment, connects production centers with urban and social agglomerations, and decentralizes development away from the country’s developed areas,” said Edimon at the launch of the report.

The Bangladesh Economic Corridor has been prepared to assess the economic potential of the northeastern and southwestern regions of the country, proposing a holistic development of the regions to achieve inclusive and sustainable development.

Along with high population and geographical coverage, the corridor region holds strategic locational advantages, according to the ADB report.
There are eight major trade gateways in the economic corridor region: Mongla seaport, Payra seaport, Benapole land port, Bhomra land port, Akhaura land port, Tamabil land port, Bibir Bazar land port, and Nakugaon land port.

While Mongla and Payra seaports provide sea route trade linkages with the world – currently contributing about 11% of seaborne international trade – land ports in the region act as major trade gateways with India, contributing 36% of India-Bangladesh trade.

Hence, the corridor region has the inherent advantage for international trade-dependent industries from the perspective of importing raw materials and/or exporting finished products.

Besides, Northeast Bangladesh has an added locational edge with respect to cross-border trade potential with Northeast India, a landlocked territory with a market demand of $38.5 billion, says the ADB.

The report says leveraging the logistical advantage, agricultural commodities and industries from the Northeast Bangladesh region can find a potential consumer market in Northeast India.

Likewise, Northeast Indian states, being endowed with natural resources, can export rubber, limestone, and other mineral resources to Northeast Bangladesh, which can act as raw materials for local industries.

In addition, Northeast Bangladesh can leverage its proximity with countries like Nepal and Bhutan, says the ADB.

Not just locational advantage, the economic corridor region is rich in agricultural produce and it has an abundance of natural resources. The region contributes 27% of fish production, 50% of tea production, and 20% of rice production of the country.

In addition, the Northeast region has natural gas reserves – more than 4,000 billion cubic feet, which can be used for nonmetallic mineral industries and can also be used for production of power, says the ADB.

Planning Minister Mannan highlighted the significance of investment in infrastructure and policy support for the successful implementation of such corridors.

He noted two major routes in the country: one from Khulna to the haors of Sunamganj and another from the northern region through Dhaka and Chattogram to Cox’s Bazar and Teknaf. The challenge of Dhaka’s congestion hinders efficient transportation, prompting the need for bypass solutions.

Mannan cited two pivotal achievements – the Bangabandhu Bridge over River Jamuna and the Padma Bridge – as transformative tasks. “Now it is possible to travel by car from Satkhira to Sunamganj or from Teknaf to Panchagarh, which was unimaginable even a few years ago.”

He stressed building connectivity as “business has no border and, in this way, informal trade would be reduced”.

The corridor region, encompassing roadways, railways, and waterways, however, is grappling with capacity limitations in its trade gateways. The corridor region has four functional airports: Dhaka, Jashore, Barishal, and Sylhet. However, Dhaka and Sylhet airports encounter capacity issues.

The scarcity of infrastructure limits higher-paying industrial and service employment, with 58% of the population employed in agriculture.

The Bangladesh Economic Corridor initiative seeks balanced and decentralised development, addressing industrial, transport, and social infrastructure.

The proposed development could occur in two phases: the southwest segment initially, followed by the northeast portion from Dhaka to Sylhet and Mymensingh, according to the ADB.

During the discussion, Shaikh Yusuf Harun, executive chairman of BEZA, and others, including Md Mostafizur Rahman, Sabyasachi Mitra from the ADB, Dr Masrur Reaz from Policy Exchange Bangladesh, and Uzma Chowdhury from PRAN-RFL Group, shared their perspectives.