Report On
Growth of Non-Bank Financial Financial Institutions in Bangladesh Discussion Area
Management of Financial Institutions P R E P A R E D F O R : Mr. Jahangir Alam Chowdhury Proessor and M.!.A Director Department o Finance "ni#ersity o Dha$a
P R E P A R E D ! % : Fa$rul &slam 'M.!.A ( )*th !atch+ Roll ,o: )-)-/ Department O Finance Faculty o !usiness 0tudies ",&1ER0&2% OF D3A4A D A 2 E O F 0 " ! M & 0 0 & O , : ) / 2 3 F E ! R " A R %5 6 7 ) -
1|Page
& am
FA4R"8 &08AM
)-)-/
2|Page
Letter of transmittal 16th February !"1# Mr$ %ahangir &lam 'howdhury (rofessor and M$B$& )irector )e*artment of Finance +ni,ersity of )haka
ir It is my immense *leasure to submit my class re*ort as you asked us to *re*are and submit as a re.uirement of course /Management of Financial Institutions 0F-"123 on /Growth of Non-Bank Financial Institutions in Bangladesh4$ I ha,e tried my best to com*ile the *ertinent information as com*rehensi,ely as *ossible and if you need any further information I will be obliged to assist you$ 5hanking you you Fakrul Islam I slam oll No$ 1#-1#6 MB& 1th batch )e*artment of Finance +ni,ersity of )haka$
2a9le o Contents 3|Page
,o.
Contents
Page ,o
7)
Eecuti#e 0ummary
7*
76
&ntroduction o !angladesh;s Economy
7/
7<
O#er#iew o Financial Mar$et in !angladesh
7=
7-
>eneral Concept o ,!F&s in !angladesh
7=
7*
8ist o ,!F&s in !angladesh
)7
7/
0tatistics Regarding ,!F&s in !angladesh
)*
7?
Conclusion
6)
78ecuti,e summary
4|Page
Financial institutions ha,e traditionally been the ma9or source of long-term funds for the economy in line with the de,elo*ment ob9ecti,e of the state$ & wide ,ariety of :nancial institutions 0FIs2 emerged o,er the years$ ;hile most of them e8tend direct :nance some also e8tend indirect :nance and still some others e8tend largely re:nance$ FIs can be broadly categori
ere I discussed how the NBFI will sustain by com*eting with ,arious factors$ 5hen the *a*er illustrates the asset liability com*osition of NBFI$ &fter that I discussed (ro:tability (ro:tability ratios for NBFI in Bangladesh$ 5hen I discussed the &sset .uality of NBFI and decision of stress testing where we see most of the NBFIs? are in satisfactory le,el e8ce*t eight NBFI$
5|Page
&,2ROD"C2&O, Bangladesh economy continues to *ro,e signi:cant resilience from its birth$ @n the basis of emergent macroeconomic indications G)( growth rate is e8*ected to be A$! *ercent in the calendar year !"1-1#$ In the latest budget of our country G)( is estimated to be 6$"C 0&ssumed by &)B $AC and IMF $DC but though it was e8*ected as more than AC in the calendar year !"1!-!"1$ 5he failure to catch the target is a=ected less by the slowdown in international trade than other emergent economies 0es*ecially &sian countries2 and has sustained solid :nancial E economic fundamentals$ fundamentals$ ather the situation is mainly characteri
>DP @ > RO23 R A2E 5he Gross )omestic (roduct (roduct 0G)(2 in Bangladesh increased by 6$"" *ercent in the calendar year !"1!-1 o,er the *re,ious calendar year$ 5he G)( Growth ate in our country country is continuo continuously usly achie,ing achie,ing :,e *ercent *ercentile ile *oints *oints to si8 *ercent *ercentile ile *oints$ *oints$ >istorically until !"1! Bangladesh G)( Growth ate is an a,erage of $6 (ercent which was all-time high at 6$AC in %une of !"11 and an all-time low of #$1C in %une of 1#$ Bangladesh is well-thought-out to be as an emergent economy$ et nearly one-third of *eo*le here 0&bout 1" million2 li,e in e8treme *o,erty$ In the last decade decade our countr country y de,el de,elo*e o*ed d due due to grow growth th of remit remittan tance ce micro microcr credi editt and garment industry$ till the main *roblems to 9usti:able im*ro,ement in Bangladesh are o,er*o*ulation *oor infrastructure corru*tion *olitical instability and a slow im*lementation of economic reforms$ Amount in Crore Crore taka Source: Statistics Department, Bangladesh Bank and EPB #AAD!
!"1!-1
#A!" ##DD
!"11-1!
#"" #!""6
!"1"-11
D"" ##!"
!""-1"
6"D# A11"
!""D-" -
#"1A 1"""""
!"""""
"""""
G)( at 'onstant Market Market (rice (rice
#"""""
"""""
6"""""
Gross Gross National Income
6|Page
6$C
!"1!-1
6$""C
6$D#!C
!"11-1!
6$!#C
6$1"C
!"1"-11
6$A"DC
6$!AC
!""-1"
6$"6C
$6!C
!""D-"
$A#1C
$""" $"""C C $!"" $!""C C $#""C $#""C $6""C $6""C $D""C $D""C 6$"""C 6$"""C 6$!""C 6$!""C 6$#""C 6$#""C 6$6"" 6$6""C C 6$D"" 6$D""C C A$""" A$"""C C
G)( at 'onstant 'onstant Mar Mark ket (r (rice
Gross Gross Nati Nationa onall Incom Income e
Source: Statistics Department, Bangladesh Bank and EPB
InHation ate 5he inHation rate in Bangladesh was documented at $!! *ercent in the calendar year !"1!-1$ 5his inHation inHation ate in Banglades Bangladesh h is *eriodic *eriodically ally con,eyed by the Bangladesh Bureau of tatistics$ >istorically a,erage inHation rate in Bangladesh is about 6$A (ercent$ 5his inHation rate reached at the highest e,er *oint at 1!$A1 (ercent in )ecember of 1D and it got at a record lowest *oint of -"$"! (ercent in )ecember 16$ Source: Statistics Department, Bangladesh Bank and EPB 1! 1" DA$"6
$D
6 # !
1"$6!
$# 6$#D
A$16
A$!
D$D 6$66
$!!
A$1
#$D !$A
1$#
!$A
"
Bangladesh InHation ate
Money su**ly In recent years an increasing tendency in broad money is obser,ed e8ce*t F!""6"A$ 5hough the o,erall de,elo*ment of broad money *osition is inconsistent inconsistent but the total amount am*li:ed in the successi,e years under study *eriod$ )uring F !"1!1 total broad money in our economy has increased increased to 61"1$" crore crore 5aka 5aka from 1A1"$" crore taka of F !"11-1!$
7|Page
A"""""$"" 61FF"1$"B 6"""""$"" """""$"" #"""""$"" B"""""$"" !"""""$"" 1"""""$"" "$""
MB
M!
M1
InHation ate
Source: Statistics Department, Bangladesh Bank and EPB
tock Market E General Inde8 From F !""D-" to F !""-1" our stock market e8*erienced an immense growth which actually started from F !""-"6$ Between these years our general inde8 9um*ed from 1 to 61 in !"1-1"$ Later market fell drastically for ,arious reasons$ &s of &*ril !"1 our general inde8 has come down to A"A$ A"""$"" 6"""$"" """$"" #"""$"" """$"" !"""$"" 1"""$"" "$""
General Inde8 Inde8
Source: Statistics Department, Bangladesh Bank and EPB
8|Page
@,er,iew of Financial market of Bangladesh
Money Mar$et
Financial mar$et o !angladesh
Foreign E:change Mar$et
Capital mar$et
Source: Statistics Department, Bangladesh Bank and EPB 5he formal :nancial market in our country is consisted of three indi,idual de*artments$ 5he money market com*rised of banks FIs and *rimary dealers as intermediaries intermediaries and sa,ings E lending instruments instruments treasury bills as instruments$ 5he ca*ita ca*itall marke markett is instit instituti utiona onali< li
Non-Bank Financial Financial Institutions 0NBFIs2 in our country ,on9an$ an$ Financ Financial ial &nstit &nstituti utions ons are &s *er Bangladesh Bank ,on9 are :nanc :nancial ial intermediaries that accumulate funds by borrowing from the general *ublic and lend the same to meet s*eciali
NBFIs NBFIs had the o**or o**ortun tunity ity to carry carry out the busin business esses es in the same same line line as of banking$ 5hen Bangladesh Bank circulated an order titled /Non-Banking Financial Institutions @rder 1D3 to con:rm enhanced regulation bylaw and at the same time time the Banglad Bangladesh esh Bank also also initi initiate ated d this this law to eradi eradicat cate e the ambigui ambiguity ty regarding regarding the acce*table areas of business for NBFIs$ But unfortunately this was not enough to satisfy the NBFI institutions as it did not co,er the com*rehensi,e ,ariety of NBFI acti,ities$ 5he order 0/Non-Banking Financial Institutions @rder 1D32 also did not refer anything clearly about the statutory li.uidity obligation that?s to be maintained with the central bank$ Later in order to eliminate the *re,ious regulatory insuJciency a new act titled KFinancial Institution &ct 1? was *assed in 1$ 5he act also clearly de:nes a broa broad d rang range e of acti acti,i ,iti ties es to be co,er co,ered ed by NB NBFI FIs$ s$ Indu Indust stri rial al (rom (romot otio ion n and and )e,elo*ment 'om*any 0I()'2 was the :rst NBFI in Bangladesh which commenced its *rocess in 1D1$ ince then the .uantity of NBFI has been growing and as of %uly !"1 it touched at 1$ 'urrently in our country the o*erations of NBFIs are controlled and regulated by the Bangladesh Bank$ 5he authority to in,ol,e in borrowing from the general *ublic usually de*ends on some factors as minimum ca*ital re.uirement e8cellence of management obedience with the concerned and related laws rules and regulations regulations and steadiness of res*ecti,e :nancial standing$ NBFIs may award loans to their clients and the general *ublic u* to a certain amount or *ro*ortion and may also *artici*ate in trust functions with s*eci:c earlier consent of the central bank$ 5he NBFIs are not *ermitted to *artici*ate in foreign e8change transactions under the *re stated laws and orders$
List of Non-Bank Financial Institutions in Bangladesh &s of %anu %anuar ary y !" !"1# 1# <) F&s are o*erating in Bangladesh while the maiden one 0Industrial (romotion and )e,elo*ment 'om*any2 was established in 1D1$ &mong the total NBFIs two numbers of NBFIs are fully go,ernment owned one is the subsi subsidia diary ry of a @'B @'B 1 0thirt 0thirteen een22 number numbers s of NBFIs NBFIs were were initi initiate ated d by *ri,a *ri,ate te domestic initiati,e and 1 0Fifteen2 0Fifteen2 numbers of NBFIs were initiated by 9oint ,enture init initia iati ti,e ,e$$ 5he 5he com* com*rrehen ehensi si,e ,e list list of the the NonNon-Ba Bank nk Finan inanci cial al Inst Instit itut utio ions ns in Bangladesh is gi,en below
!angladesh Finance and &n#estment Co. 8td.: 1$ !angladesh Bangl Banglade adesh sh Finance inance and In,est In,estmen mentt 'om*an 'om*any y Limite Limited d 0BFI'L 0BFI'L22 a non-ba non-banki nking ng :nance com*any incor*orated in Bangladesh on 1" May 1 as a *ublic limited com*any$ It began business on 1 February !"""$ Its authori
10 | P a g e
!$ !angladesh &ndustrial Finance Company 8imited '!&FC+: Bangladesh Industrial Finance 'om*any Limited 0BIF'2 is a 9oint ,enture Leasing and Financing 'om*any *romoted by a grou* of? Foreign and Local *onsors$ $ !ay 8easing and &n#estment 8imited: Bay Leasing and In,estment Limited 0BLIL2 a second generation NBFI 0Non-Banking Financial Institution2 was incor*orated in A February 16 s*onsored by a grou* of *rominent industrialists businessmen and *rofessionals$
#$ Delta !rac 3ousing Finance Corporation 8td. 'D!3+: )elta )elta Brac Brac >ousin >ousing g Financ inance e 'or*or 'or*orati ation on Ltd$ Ltd$ 0)B>2 0)B>2 is the *ionee *ioneer r larges largestt and s*ecialist in >ousing Finance institution in the *ri,ate sector of the country$ &fter comm commen enci cing ng o*er o*erat atio ion n in the the earl early y 1 1A A the the com* com*an any y has has regis egiste terred commen commendab dable le growt growth h in creat creating ing home home owner ownershi shi* * among among more more than than !""" !""" families in )haka and other ma9or cities of the country$ $ Fareast Finance and &n#estment 8imited: Fareast Finance E In,estment Limited-a leasing and :nancing com*any started its busin business ess in the early !""! !""! to ser,e ser,e its clients clients with with high high ethica ethicall stand standar ards ds and accountability$ Fareast belie,es that each of its acti,ities must *ro,ide satisfaction to its customers and will start *rogress for them$ 6$ FA0 Finance and &n#estment 8imited F& Finance and In,estment Limited ha,ing its registered and o*erational oJce is loca locate ted d at +tta +ttara ra Bank Bank aban aban 0th 0th Floo Floor2 r2 " Moti Moti9h 9hee eell B& B& )hak )hakaa-1" 1""" "" Bangladesh$ 5his was incor*orated in Bangladesh as a *ri,ate limited com*any on e*tember e*tember !A !""1 and the com*any was subse.ue subse.uently ntly con,erted con,erted into *ublic limited com*any under the 'om*anies &ct 1#$ 5he com*any obtained license from Bangladesh Bank under the Financial Institutions &ct 1$ A$ First 8ease Finance and &n#estment 8td.: First irst Lease Lease Financ inance e and In,est In,estmen mentt Limite Limited d 0FLFIL 0FLFIL2 2 ha,ing ha,ing its regis register tered ed and o*erational oJce is located at %ahangir 5ower 0rd Floor2 1" awran Ba0P Finance Company '!angladesh+ 8imited '>0P!+: 11 | P a g e
G( Financ inance e 'om*an 'om*any y 0Bangl 0Banglade adesh sh22 Limite Limited d 0G(B2 0G(B2 ha,ing ha,ing its regis register tered ed and o*erational oJce is located at 1' (aribag (aribag Mymansingh oad amna )haka-1!" Banglades Bangladesh$ h$ 5he com*any was incor*or incor*orated ated in Banglade Bangladesh sh as a *ri,ate *ri,ate limited limited com*any on &*ril 1A 16$ 5he com*any obtained license from Bangladesh Bank under the Financial Institutions &ct 1$ $ 3aBB Finance: >a99 Finance 'om*any Limited ha,ing its registered and o*erational oJce is located at Fa9lur ahman 'entre 0D th Floor2 A! )ilkusha 'ommercial &rea )haka-1""" Banglades Bangladesh$ h$ 5he com*any was incor*or incor*orated ated in Banglade Bangladesh sh as a *ri,ate *ri,ate limited limited com*any on %uly "! !""A$ 5he com*any obtained license from Bangladesh Bank under the Financial Institutions &ct 1$ 1"$ &D8C Finance 8imited: I)L' Finance Finance Limited is a multi*roduct multi*roduct :nancial institution established in 1D with the collab collabora oratio tion n of re*ut re*uted ed inter internat nation ional al de,el de,elo*m o*ment ent agenci agencies es like like ore orean an )e,elo*ment Leasing 'or*oration 0)L'2 outh orea$ 5he *rimary goal of I)L' was to hel* moderni
)). )). &nd &ndustr ustria iall and and &n &nras rastru tructure ture De De#el #elopm opment Fin Finan anc ce Com Company any '&&DFC+ 8imited: Industrial and Infrastructure )e,elo*ment Finance 'om*any Limited 0II)F'L2 was incor*orated in Bangladesh on )ecember 1 !""" as a *ublic limited com*any$ 5he 'om*any was licensed under Financial Institution &ct 1 by Bangladesh Bank on %anuary ! !""1 and started o*eration from May !""1$ 5he registered registered oJce of the 'om*any is situated as 'hamber Building 06th Floor2 1!!-1!# Moti9heel '& )haka O 1""" Bangladesh$
&ndustria riall Promot Promotion ion and De#el De#elop opme ment nt Compa Company ny o !angl !anglad ades esh h 1!$ &ndust 8imited'&PDC+: I()' is the :rst *ri,ate sector Financial Institution in Bangladesh established in 1D1 by a distinguished multilateral team of shareholders$
De#elopment Company 8imited '&DCO8+: 1$ &nrastructure De#elopment Infrastructure )e,elo*ment 'om*any Limited 0I)'@L2 was established on 1# May 1A 1A by the Go,er Go,ernme nment nt of Bangla Banglades desh h 0G@B2$ 0G@B2$ 5he 5he 'om*a 'om*any ny was was licens licensed ed by Bangladesh Bank as a non-bank :nancial institution 0NBFI2 on %anuary 1D$ ince its its ince ince*t *tio ion n I)'@ I)'@L L is *lay *layin ing g a ma9o ma9orr role role in brid bridgi ging ng the the :nan :nanci cing ng ga* ga* for for de,elo*ing medium and large-scale large-scale infrastructure and renewable energy *ro9ects in Bangladesh$ 5he com*any now stands as the market leader in *ri,ate sector energy and infrastructure :nancing in Bangladesh$
12 | P a g e
1#$ &nternational 8easing and Financial 0er#ices 8imited: International Leasing &nd Financial er,ices Limited 0International Leasing2 a multi *roduct 9oint ,enture :nancial institution has been established with the *ur*ose of assisting the *roducti,e enter*rises in Bangladesh through the *ro,ision of lease :nancing and related :nancial ser,ices for de,elo*ment of the industrial energy agri agricu cult ltur ural al tran trans* s*or ort t cons constr truc ucti tion on tele teleco comm mmun unic icat atio ion n *owe *ower r medi medica cal l commercial and *rofessional sectors$ 1$ &slamic Finance and &n#estment 8imited: IFIL is a *ublic limited com*any within the meaning of clause of section !012 of com*anies? act 1# in Bangladesh fully owned by Bangladeshi nationals$ 16$ 8an$a !angla Finance 8td.: Lanka Bangla Finance Finance Limited 0LBFL2 a 9oint ,enture :nancial institution established with multinationa multinationall collabor collaboratio ation n is in o*eratio o*eration n since since 1A ha,ing ha,ing license license from from Bang Bangla lade desh sh Bank Bank unde underr Finan inanci cial al Inst Instit itut utio ions ns &c &ct t 1 1 $$ ;ith ith inst instit itut utio iona nall shareholding structure educated E moti,ated human resources friendly working en,ironmen en,ironmentt E dynamic dynamic cor*orate cor*orate cultur culture e has enabled LBFL to be a di,ersi: di,ersi:ed ed :nancial ser,ices *ro,iding institution of the country$ 5echnical su**ort *ro,ided by am*ath Bank Limited ri Lanka has been working as a catalyst to emerge LBFL as most inno,ati,e :nancial solution *ro,ider strictly in com*liance with the rules E regulations of Bangladesh Bank$ 1A$ M&DA0 Financing 8imited 'MF8+: MI)& MI)& FIN&N' FIN&N'ING ING LIMI57 LIMI57) ) 0MFL2 0MFL2 is leadin leading g :nanc :nancial ial instit instituti ution on of the count country ry licensed by Bangladesh Bank under the :nancial institutions &ct 1$ MFL >ousing Loan cheme has been launched to ful:ll the dream of the limited income *eo*le by e8tending :nancial su**ort in the form of term loan for constructing a house andor *urchasing *urchasing an a*artmentreadymade a*artmentreadymade housecommercial housecommercial s*ace$ 1D$ ,ational Finance 8imited: National Finance 'om*any Limited ha,ing its registered and o*erational oJce is located located at +ni.ue +ni.ue 5rade 'entre 'entre 0+5'2 0+5'2 Le,el-1" Le,el-1" D (antha (antha*ath *ath )haka-1!1 )haka-1!1$ $ 5he com*any was incor*orated in Bangladesh as a *ri,ate limited com*any on March " !""$ 5he com*any obtained license from Bangladesh Bank under the Financial Institutions &ct 1$ 1$ ,ational 3ousing Finance and &n#estments 8imited: National >ousing Finance &nd In,estments Limited 0N>FIL2 is a uni.ue Loans and a,ings institution o*erating in our country$ It is a (ublic Limited 'om*any under the 'om*anies &ct 1# and licensed by Bangladesh Bank under the Financial Institutions &ct 1$ ;e were incor*orated in &ugust 1D 1D with authori
13 | P a g e
ca*ital 5k$ !""" million *aid u* ca*ital of 5k$ #"" million$ @ur :nance includes >ousing :nance Lease :nance )e*osit scheme 'ar Loan$ !"$ People;s 8easing and Financial 0er#ices 8td: (eo*le?s (eo*le?s Leasing Leasing and Financial inancial er,ices er,ices Limited Limited 0(LF2 0(LF2 is a :nancial :nancial institut institution ion established within the ambit of Financial Financial Institutions &ct-1 and was incor*orated as a (u (ubli blic c Limite Limited d 'om*an 'om*any y under under 'om*an 'om*anies ies &c &ct-1 t-1# # on &u &ugus gustt 1! 16$ 16$ 'om*any obtained license from Bangladesh Bank on No,ember !# 1A to carry on lease :nance business$ &uthori
e=ecti,e e=ecti,e :nancial :nancial ser,ices ser,ices with distincti distincti,e ,e customer customer ser,ice$ ser,ice$ 5he 'om*any 'om*any has di,ersi:ed its business and the growth has been steady and satisfactory$
0audi!angla nglades desh h &ndustrial &ndustrial and Agricult Agricultural ural &n#estmen &n#estmentt Company Company !$ 0audi!a 8imited '0A!&,CO+: aud audii Bang Bangla lade desh sh Indu Indust stri rial al and and &g &gri ricu cult ltur ural al In,e In,est stme ment nt 'om* 'om*an any y Limi Limite ted d *o*ularly known by its acronym &BIN'@ is a 9oint ,enture Industrial Finance and In,estment 'om*any owned by the Go,ernments of audi &rabia and Bangladesh$ It was incor*orated under the Bangladesh 'om*anies &ct 11 on !#th %une 1D# with it?s head.uarter in )haka$ 5he com*any commenced o*eration in 1D6$ In 1 Bangladesh Bank granted license to o*erate it as a Non-Banking Financial Institutions$ !6$ 2he "AE!angladesh &n#estment Co. 8td: +&7 +&7 Bang Bangla lade desh sh In,e In,est stme ment nt 'om* 'om*an any y Limi Limite ted d a *ri, *ri,at ate e limi limite ted d com* com*an any y incor*orated in Bangladesh under the 'om*anies &ct 11 on 11 %une 1DA with a desire to consolidate the 9oint e=orts of the go,ernment of Bangladesh and +nited &rab 7mirates to *romote economic co-o*eration between them$ 5o this e=ect a contract was signed on D No,ember 1D6 between the go,ernments of Bangladesh and &bu )habi Fund for 07conomic2 )e,elo*ment$ !A$ "nion Capital 8imited: +NI@N '&(I5&L LIMI57) is one of the largest in,estment banks and fastest growing :nan :nanci cial al inst instit itut utio ions ns in Bang Bangla lade desh sh$$ (re, (re,io ious usly ly it was was know known n as (ereg eregri rine ne Bangladesh which had its origins and businesses rooted in >ong ong$ @ut of the local oJce of the erstwhile (eregrine 'a*ital Limited of >ong ong +nion 'a*ital Limited )haka emerged in early 1D as a Bangladesh-based com*any led by a grou* of the foremost entre*reneurs of the country$ +nion 'a*ital within a short s*an of time has *ro,ed its worth as a most forward-working ,igorous organi
15 | P a g e
&grani M7 Financing com*any Limited is a com*letely go,ernment owned com*any$ 5his com*any gets their license 1 %anuary !"11 from Bangladesh Bank$ 5his FI is not not started their their o*eration yet$ yet$ 5his FIs main main business *ur*ose is to gi,e M7 loan$
1$ !angladesh &nrastructure Finance Fund 8imited: Bangladesh Infrastructure Finance Fund Limited 'om*any is Go,ernment owned com*any$ com*any$ 5his com*any gets license from Bangladesh Bank 16 @ctober !"11$ 5his FI is not started their o*eration yet$
tatistics regarding Financial Financial Institutions in our country &mon &mong g the the 1 NB NBFI FIs s twen twenty ty thr three com*a com*ani nies es are are list listed ed in the the )hak )haka a toc tock k 78change$ 5he listed com*anies are Bay Leasing E In,estment Limited Bangladesh Finance inance and In,estment In,estment 'o$ Ltd Banglades Bangladesh h Industrial Industrial Financi Financial al 'om*any Ltd )elta Brac >ousing Finance 'or*oration Ltd Fareast Finance E In,estment Limited F& Finance E In,estment Limited First Lease Finance and In,estment Ltd$ G( Finance inance 'om*an 'om*any y 0Bangl 0Banglad adesh esh22 Limite Limited d I'B I'B I)L' I)L' Financ inance e Ltd$ Ltd$ Inter Internat nation ional al Leasing E Financial er,ices Limited Industrial (romotion E )e,elo*ment 'om*any of Banglades Bangladesh h Ltd Islamic Islamic Finance inance E In,estment In,estment Ltd LankaBan LankaBangla gla Finance inance ltd MI)& Financing Ltd National >ousing Finance and In,estment Ltd (hoeni8 Finance and In,estmen In,estments ts Ltd (eo*les (eo*les Leasing Leasing and Fin$ er,ices er,ices Ltd (remier (remier Leasing Leasing E Finance inance Limited (rime Financ Finance e E In,estment In,estment Ltd +nited +nited Leasing Leasing +nion +nion 'a*ital 'a*ital Limited +ttara Finance Finance and In,estments Limited$ 5he sectorial data for the :nancial institutions sector in the following section has been collected and analy
!#$!
ector 'a*
B)5 1!#1A 1!#1A
ector 7arnings 7arnings
B)5 66#1"66D
ector Beta
"$1!
16 | P a g e
ector 7arning
6$# !1$D1 1$
ector 'a*
#!1$#6 !#$!
(7 atio
1$! "
"
1""
1"
Bank Bank
!""
!"
""
"
#""
#"
Financ nanciial Ins Insti titu tuti tion ons s
Source: Stock Bangladesh Limited Amount in BDT Billion (except (except ratios In the the com* com*ar aris ison on sect sectio ion n I?,e I?,e com* com*ar ared ed the the obta obtain ined ed data data of the the :nan :nanci cial al institutions sector with the Banking sector of our country$ Banking industry is closely related with the :nancial institutions industry and it may be com*arable to the banking industry as these two are com*arati,ely same in terms of basic features$ 5he (7 ratio for the :nancial institutions sector is !#$! against the (7 ratio of 1$! 1$! from from the banki banking ng sector sector If we com*ar com*are e the sector sector ca*it ca*ital al of these these two industry we can see that the ca*ital of the banking industry is signi:cantly higher than that of :nancial institutions$ Because there are more *layers in the banking industry than there are in the :nancial institutions industry$ @n the other hand the .uality and strength of the *layers in the banking industry is signi:cantly higher than the NBFIs$ o altogether banks *lay the ma9or role in our :nancial market$ 5his rationale is also reHected in the sector earning of these two industries$ >er it is ob,ious that the earnings of the banking industry is signi:cantly higher than the :nancial institutions industry$
(orter factor &nalysis
17 | P a g e
Porter * actors or nancial institutions in !anglades !angladesh h Financial Institutions Industry status Matured >ighlo factors easons w 'om*eting in a matured and ,ast market 'om*etition with ri,als >igh but ha,e to deal within market niche$ 'ost of fund is relati,ely high than the 5hreat of of new entrants Low banks$ )i=erent institutions like banks are 5hreat of of substitute >igh *ro,iding almost indistinguishable ser,ices E *roducts$ witching cost is low$ 5here are numerous alternati,e sources are a,ailable$ &nd Bargaining *ower of >igh clients are not controllable$ ather they may buyers switch to any *roduct or ser,ice as they chose so$ u**liers of funds are com*arati,ely Bargaining *ower of insigni:cant insigni:cant in numbers other than *ublic >igh su**liers in,estors$ &s regulation binds the com*any to take
&sset com*osition of NBFIs of Bangladesh
18 | P a g e
1$6 1$A 1$6
@ther in,estments
!$# In,estment in go,ernment securities $1 '!"1"
'!"11
'!"1! 1!$6 1#$D 1"$!
5erm erm :nan :nance ce
#$D 6$1 $D
Lease :nance "
"
1""
1"
!""
!"
Amount in BDT !illion Source: Statistics Department, Bangladesh Bank It is clear from the abo,e chart that in case of NBFI the ma9or *ortion of assets comes from the lease and loan *ortfolio$ @ther in,estments and in,estments in go,ernment securities securities *lay a negligible *art in the asset mi8$ It is also clear that the term :nance is *laying the ma9or role in its asset mi8$ &nd gradually the *ercentage of term term :nance :nance in the *ortfo *ortfolio lio of NBFI NBFI is gettin getting g *refe *referr rred$ ed$ ;ithi ;ithin n last last three three calendar year term :nance has increased by almost D"C and it is mostly inHuencing the total asset *ortfolio$ '!"1!
!6$6
'!"11
!A6$#
'!"1" "
!#$6 "
1""
1"
!""
!"
""
"
5otal assets
Amount in BDT !illion Source: Statistics Department, Bangladesh Bank
Liability com*osition of NBFIs of Bangladesh
19 | P a g e
$6 '!"1!
!6A !6A 1#$! A$
'!"11
!1$1 116$# #!$6
'!"1"
!"1 $D
"
"
1""
1"
)e*osits
!""
!"
""
5otal liabilities
hareholders? e.uity 0'a*ital2
Amount in BDT !illion Source: Statistics Department, Bangladesh Bank From the liability com*osition of the NBFIs in our country it can be summari
'!"11
#A$C
#D!$AC
'!"1"
A1$DC
#!"$""C ##"$""C #6"$"" $""C #D"$""C ""$""C !"$""C #"$""C 6"$""C D"$""C )ebt to e.uity ratio ratio
Source: Statistics Department, Bangladesh Bank 20 | P a g e
From the liability com*osition of the NBFIs in our country it can be summari
(ro:tability ratios for NBFIs of Bangladesh $"C '!"1!
1"$!"C 1$"C #$"C
'!"11
1!$1"C !$"C #$"C
'!"1"
1#$#"C !$"C
"$""C
!$""C
#$""C
6$""C
etur eturn on &sset &ssets s 0@ 0@&2
D$""C
1"$""C
etur eturn on 7.u 7.uiity 0 0@72 @72
1!$""C
1#$""C
16$""C
Net Int Inter erest est Mar Margi gin n 0NIM2 0NIM2
Source: Statistics Department, Bangladesh Bank &ll the *ro:tability ratios are showing downward trend in the last three calendar years$ eturn on &ssets 0@&2 eturn on 7.uity 0@72 Net Interest Margin 0NIM2 etc$ *ro:tabilit *ro:tability y ratios ratios dro**ed dro**ed o,er this *eriod$ *eriod$ 5his actually actually ha**ened ha**ened due to recent economic downturn stock market colla*se *olitical turbulence etc$ $""C
'!"1! 11$""C
6$D"C
'!"11
1"$"C 6$1"C
'!"1" "$""C
$A"C !$""C
#$""C
6$""C
'ost of )e*osit )e*osits s E Borr Borrowin owings gs
D$""C
1"$""C
1!$""C
&,era ,erage ge *read *read
Source: Statistics Department, Bangladesh Bank & ,ery high cost of fund resulting into a ,ery low s*read is another cause for this negati,e mo,ement$ >ere the a,erage cost of fund is around 1"C to 11C whereas the cost of fund for the banks is much lower than this rate$ Besides this *re,iously there was no restriction o,er the s*read managed by these institutions$ But as
21 | P a g e
recently some restrictions ha,e been im*osed on the s*read the a,erage s*read for :nancial institutions ha,e dro**ed shar*ly$
&sset .uality for NBFIs of Bangladesh 6$"C '!"1!
1!$"C !!$1"C 6A$"C
'!"11
1!$!"C 1D$""C 6$A"C
'!"1"
16$"C !#$D"C
"$""C
1"$""C
!"$""C
"$""C
#"$""C
"$""C
6"$""C
A"$""C
D"$""C
'lassi:ed 'lassi:ed Loans E Leases to 'a*ital Loan Loss (ro,isions to 'a*ital Loan Loss (ro,isions to 'lassi:ed Loans E Leases
Source: Statistics Department, Bangladesh Bank From the abo,e gra*hs it can be im*lied that the asset .uality of the NBFI industry of our country is not u* to mark$ >ere the classi:ed loan ratio is com*arati,ely high$ 5his high N(L ratio is killing u* a ma9or *ortion of *ro:t as the com*anies ha,e to kee* certain *re-guided amount of *ro,isions against these classi:ed loans$ 5he amount amount of *ro,i *ro,isi sion on ,aries ,aries with with di=er di=erent ent class classi:e i:ed d loan loan ty*es$ ty*es$ But it may be mentio mentioned ned that though though the o,eral o,eralll N(L ratio ratio is high high it may be lower lower for some *rominent com*anies$ 1$""C '!"1! 1$#"C
!"$A"C '!"11 1D$"C 1A$""C
1A$"C
1D$""C
1D$"C
1$""C
'a*ital 'a*ital to isk isk-; -;eighted eighted &ssets
1$"C
!"$""C
!"$"C
!1$""C
'a*ital 'a*ital to 5otal &ssets
Source: Statistics Department, Bangladesh Bank 22 | P a g e
&s *er recent modi:cation in the rules and guidelines by Bangladesh Bank e,ery :nancial institution has to maintain 1"C ca*ital ade.uacy ratio o,er its total risk weighted assets$ @,er the last two calendar years as *er Bangladesh bank re*orts a,erage ca*ital to risk weighted assets was more than the desired le,el$ 5he stress test result from the Bangladesh Bank re*ort based on end )ecember !"1! data discloses that out of 1 NBFIs the !! listed NBFIs submitted their stress testing re*ort formally$ &mong the 1 NBFI are to be found in green
'onclusion 7mergence of NBFIs has created a new a,enue in our bank dominance traditional :nancial system$ Long term lending of banks is mostly unfamiliar *roduct for them and has created a serious distortion in the :nancial market$ ather than gaining any bene bene:t :t from from such such ty*e ty*es s of acti acti,i ,iti ties es the the soci societ ety y is now now carr carryi ying ng the the load load of o,erwhelming default loans$ &s leasing is considered as an alternati,e of long term :nancing many NBFIs ha,e strong *erformance in leasing business$ NBFIs ha,e to be e.ui**ed with highly *rofessional *ersonnel and technological ad,ancement to chase the future o**ortunities and com*etition as well$ trong institutional su**ort is necessary for the de,elo*ment of ca*ital market which is the core of economic de,elo de,elo*me *ment nt in the marke markett econom economic ic system system$$ NBFIs NBFIs aroun around d the the world world *ro,i *ro,ide de inst instit itut utio ions ns su** su**or ortt to the the ca*i ca*ita tall mark market et$$ In Bang Bangla lade desh sh now now ! NB NBFI FIs s are are registered with the 7' and they should concentrate more on their acti,ities in the ca*ital market$ NBFIs are su=ering from high cost and scarcity of funds$ &t *resent with high cost of fund non-banks are forced to com*ete with the banks those ha,e relati,ely low cost of fund$ 5his situation somewhat ham*ers the growth and de,elo*ment of NBFIs$ For ra*id growth and de,elo*ment of this sector fund *roblem should be sol,ed on a *riority basis$ @*ening of a re:nancing re:nancing window e,en for a limited *eriod of time time may may be cons consid ider ered ed afte afterr a stra strate tegi gic c e,al e,alua uati tion on$$ Bank Bankin ing g has has the the mult multif ifac acet eted ed own own acti acti,i ,iti ties es so that that for for brin bringi ging ng mor more eJci eJcien ency cy in thei theirr own own eJcien eJciency cy as well well as the the eJcien eJciency cy of the :nancial :nancial system system they they shoul should d not be in,o in,ol, l,ed ed with with the the acti acti,i ,iti ties es that that the the NB NBFI FIs s can can do$ do$ It is recom ecomme mend nded ed that that go,ernment and the central bank will take initiati,es to ease the fund constraint of NBFIs so that they can minimi
23 | P a g e
5here are many *roblems in the de,elo*ment *rocess *rocess of NBFIs and conse.uently strengthening the :nancial system of Bangladesh$ It is now well established that NBFIs can contribute much in strengthening the :nancial system as well as in the *rocess of economic de,elo*ment of the country$ country$ ince ince*tion in 1D6 NBFIs are some-what successful to draw attention of the *eo*le and establish its im*ortance in the :nancial :nancial sector sector as well well as in the econom economy y of Bangla Banglades desh$ h$ 5he 5he busine business ss growth of the NBFI and their *erformance and rating is im*ro,ing e,ery year which shows the *ositi,e sign for this industry$ It is ho*ed that in future NBFIs would be able to *lay more signi:cant role in the de,elo*ment of economy of Bangladesh$ Banks and Non-Bank Financial Institutions are both key elements of a sound and stabl stable e :nanci :nancial al system system$$ Banks Banks usual usually ly domina dominate te the :nanc :nancial ial system system in most most countrie countries s because because busines businesses ses households households and the *ublic *ublic sector sector all rely on the banking system for a wide range of :nancial *roducts to meet their :nancial needs$ >owe,er >owe,er by *ro,idi *ro,iding ng addition additional al and alterna alternati,e ti,e :nancial :nancial ser,ices ser,ices NBFIs ha,e already gained considerable *o*ularity both in de,elo*ed and de,elo*ing countries$ In one hand these institutions hel* to facilitate long-term in,estment and :nancing which is often a challenge to the banking sector and on the otherQ the growth of NBFIs widens the range of *roducts a,ailable for indi,iduals and institutions with resources to in,est$ 5hrough their o*eration NBFIs can mobili
24 | P a g e
