Table of Contents
Chapter One: Introduction
……………….……………..………………………………..………………….……………... 3
1.1 An overview of Finance companies of Bangladesh
……………….……………..…………………………… 4
1.2 Background of the study
……………….……………..………………………………..………………….………….. 4
1.3 Objectives of the study
……………….……………..………………………………..………………….……………. 5
1.4 Scope of the study
……………….……………..………………………………..………………….……………..……. 5
1.5 Methodology of the study
……………….……………..………………………………..………………….……….. 6
1.6 Limitations of the study
……………….……………..………………………………..………………….…………… 6
Chapter Two: Literature review
……………….……………..…………………………………………..…………….... 7
Chapter Three: An overview of Finance companies of Bangladesh
……………….……………..……….. 11
3.1 An overview of IDLC Finance Ltd.
……………….……………..………………………………..……………….. 12
3.2 An overview of Lanka Bangla Finance Ltd.
……………….……………..………………………………..…… 12
3.3 An overview of Uttara Finance and Investments Limited
……………….……………..……………….. 13
3.4 An overview of Bangladesh Finance and Investment Co. Ltd
……………….……………..…………… 15
3.5 An overview of Prime Finance & Investment Ltd.
……………….……………..………………………….. 16
Chapter Four: Activities of Finance companies
……………….……………..………………………………..….. 18
4.1 Corporate Division
……………….……………..………………………………..………………….……………..….. 19
4.1.1 Corporate Finance:
……………….……………….……………….……………..………………….………….. 19
4.1.2 Structured Finance Solutions
……………….……………..………………………………..……………….. 19
4.1.3 Corporate Advisory/ Other Services
……………….……………..………………………………..……… 20
4.2 Small and Medium Enterprises
……………….……………..………………………………..…………………... 21
4.2.1 Small Enterprise Finance
……………….……………….……………….……………..………………….….. 21
4.2.2 Medium Enterprise Finance
……………….……………..………………………………..…………………. 22
4.2.3 Supplier and Distributor Finance
……………….……………..………………………………..………….. 22
4.3 Consumer Finance
……………….……………..………………………………..………………….……………..….. 23
4.3.1 Loans
……………….……………..………………………………..………………….……………..………………. 23
4.3.2 Deposit
……………….……………..………………………………..……………………………..……………..… 23
4.4 Treasury
……………….……………..………………………………..………………….……………..………………… 24
4.5 Capital Markets
……………….……………..………………………………..………………….……………..……… 24
4.5.1 Securities
……………….……………..………………………………..………………….……………………….. 24
4.5.2 Investments
……………….……………..………………………………..………………….……………..…….. 24
4.6 CSR and Green Banking/ Green
Finance………..……………..……………….………………………..…….. 25
Chapter Five: Performance Analysis
……………….……………..………………………………..…………………. 27
5.1 Financial Analysis
……………….……………..………………………………..………………….……………..…… 28
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5.1.1 Liquidity Ratio
……………….……………..………………………………..………………….……………..…. 28
5.1.2 Solvency Ratios
……………….……………..………………………………..………………….……………..… 28
5.1.3 Efficiency Ratio
……………….……………..………………………………..………………….……………….. 28
5.1.4 Profitability Ratios
……………….……………..………………………………..………………….…………… 28
5.2 Some other Performance
Indicators………………….……………..……………..………………………….… 28
5.1 Financial Analysis
……………….……………..………………………………..………………….……………..…… 29
5.1.1 Liquidity Ratio
……………….……………..………………………………..………………….……………..…. 29
5.1.2 Solvency Ratios
……………….……………..………………………………..………………….……………….. 30
5.1.3 Efficiency Ratio
……………….……………..………………………………..………………….……………..… 35
5.1.4 Profitability Ratios
……………….……………..………………………………..………………………….…… 40
5.2 Some other Performance
Indicators………………….……………..……………..………………….………… 48
Chapter Six: Findings
……………….……………..………………………………..………………….……………..…….. 53
6.1 Findings at a glance
……………….……………..………………………………..………………….……………….. 54
6.2 Comparative Analysis
……………….……………..………………………………..………………….…………….. 54
6.2.1 IDLCFIN
……………….……………..………………………………..……………………………………………... 54
6.2.2 LANKABAFIN
……………….……………..………………………………..………………….……………..……. 55
6.2.3 UTTARAFIN
……………….……………..………………………………..………………….……………..……… 55
6.2.4 BDFIN
……………….……………..………………………………..………………….……………..……………… 55
6.2.5 PRIMEFIN
……………….……………..………………………………..………………….……………..………… 55
Chapter Seven:
……………….……………..………………………………..………………………….……………..………. 56
Recommendations
……………….……………..………………………………..………………….……………..………….. 56
7.1 Specific recommendations for the selected five finance companies
……………….……………..… 57
7.2 General recommendations for finance companies
……………….……………..…………………………. 58
Chapter Eight: Conclusion
……………….……………..………………………………..………………….…………….. 59
References
……………….……………..………………………………..………………….……………..……………………… 61
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Chapter One:
Introduction
3
1.1 An overview of Finance companies of Bangladesh Financial institutions can be
divided into two types: banking financial institutions and non- banking financial
institutions. Banking financial institutions include commercial banks whose primary role
is to accept deposits and make loans. Non-banking financial institutions include
investment banks, insurance companies, finance companies, leasing companies, etc.
Financial companies are financial institutions that provide certain types of banking
services, but do not hold a banking license. Generally, these institutions are not allowed
to take deposits from the public, which keeps them outside the scope of traditional
oversight required under banking regulations. They can offer banking services such as
loans and credit facilities, retirement planning, money markets, underwriting, and
merger activities. Finance companies are regulated under Financial Institution Act, 1993
and controlled by Bangladesh Bank. Now, 33 Finance companies are operating in
Bangladesh while the maiden one was established in 1981. Out of the total, 2 is fully
government owned, 1 is the subsidiary of a SOCB, 15 were initiated by private domestic
initiative and 15 were initiated by joint venture initiative. Some of these finance
companies are: Uttara Finance and Investments Limited, United Leasing Company
Limited (ULCL), Union Capital Limited, The UAE-Bangladesh Investment Co. Ltd,
Saudi- Bangladesh Industrial & Agricultural Investment Company Limited (SABINCO),
Reliance Finance Limited, Prime Finance & Investment Ltd, Premier Leasing & Finance
Limited, Phoenix Finance and Investments Limited, People’s Leasing and Financial
Services Ltd, National Housing Finance and Investments Limited, National Finance Ltd,
MIDAS Financing Ltd. (MFL), LankaBangla Finance Ltd., Islamic Finance and
Investment Limited, International Leasing and Financial Services Limited, IDLC Finance
Limited, First Lease Finance & Investment Ltd., Bangladesh Industrial Finance
Company Limited (BIFC), Bangladesh Finance & Investment Co. Ltd., Agrani SME
Finance Co. Ltd. etc. Major sources of funds of financial companies are Term Deposit
(at least three months tenure), Credit Facility from Banks and other Finance companies,
Call Money as well as Bond and Securitization. The major difference between banks
and FIs are as follows:
▪ FIs cannot issue cheques, pay-orders or demand
drafts.
▪ FIs cannot receive demand deposits.
▪ FIs cannot be involved in foreign exchange financing.
▪ FIs can conduct their business operations with diversified financing modes like
syndicated financing, bridge financing, lease financing, securitization instruments,
private placement of equity etc.
1.2 Background of the study Project work (BUS-498) is an important part of the
Bachelor of Business Administration (BBA) program. In this course, students are
assigned on a particular topic by his/her supervisor. In a project, students have to do
huge research and apply their theoretical knowledge into the project work. This project
enables a student for developing their analytical skills and give practical knowledge
about the environment of the organizations. At the end of the day it reflects what they
learned throughout the program and finally students submit his/her reports in front of the
supervisor. This report is undertaken as a learning requirement for “Performance
4
Analysis of Selected Finance Companies of DSE”. The companies are: IDLC Finance Ltd., Lanka Bangla
Finance, Uttara Finance Ltd., Bangladesh Finance and Investment Company Ltd. (BD Finance) and Prime
Finance Investment Ltd. The report covers all-important information regarding evaluating the performance of five
finance companies and it has been prepared in compliance with the instructions of my supervisor Mustafa N Aziz,Senior
Lecturer, East West University. I have given my best effort to appropriately apply my potentiality practical and theoretical
knowledge to make the report reliable and information worthy.
1.3 Objectives of the study Finance companies are very much popular in Bangladesh
at present. Finance companies are provider of integrated financial services including
corporate financial services, retail financial services, SME financial services, stock
broking, and corporate advisory and wealth management services. So, this is very
important to analyse the performance of these finance companies and it is reflected
through the following objectives.
▪ Broad objective: The broad objective of preparing this report is to compare financial
performance of Finance Companies in Bangladesh and to have a clear conception
about all of the essential parts of this project.
▪ Specific objective: The specific objectives of this report
are:
✓ To represent an overview of Finance Companies of Bangladesh. ✓ To
appraise the performance of Finance Companies. ✓ To analyse financial
condition of the Finance Companies based on important
factors and to compare performance of each of these companies. ✓ To identify
the problems affecting the performance of Finance Companies. ✓ To
suggest remedial measures for development of the Finance Companies.
1.4 Scope of the study The study “Performance Analysis of Selected Finance
Companies of DSE” has provided understanding of overall performance of five
selected Finance Companies which are IDLC Finance Ltd., Lanka Bangla Finance,
Uttara Finance Ltd., Bangladesh Finance and Investment Company Ltd. (BD Finance)
and Prime Finance Investment Ltd. This study also provides clear idea about how these
finance companies operate, how they are different from traditional banks, evaluates
individual performance and shows comparison of these Finance companies. By
observing this study we will be able to know about the challenges that all Finance
companies are facing and what can be done to overcome these challenges. Finally this
study revealed the position of these Finance companies based on their performance.
However, the scope of this study is limited within the information gained from the Annual
reports of these companies in 2011-2015.
5
1.5 Methodology of the study Methodology can be termed as underlying principles and
rules of organization or the philosophical systems that work at the backdrop of any
study. It clarifies the problems involving the research in a very ordered and systematic
fashion. Strategic are determined at this stage for future implementation. This study has
been carried out to evaluate the performance of selected Finance Companies of
Bangladesh. Decisions and calculations have been made basing on past experiences
and the available data of past activities which are secondary data based report. The
relevant data and information were collected from Dhaka stock exchange library, Annual
Reports of Finance Companies and web sites of selected Finance companies of
Bangladesh etc. In addition to the study purpose, different published articles, books,
newspaper, and websites have also been reviewed and consulted. The following five
Finance companies are selected for the study: IDLC Finance Ltd., Lanka Bangla
Finance, Uttara Finance Ltd., Bangladesh Finance and Investment Company Ltd. (BD
Finance) and Prime Finance Investment Ltd.
This report measure the performance based on financial statements from 2011 to 2015
of these five Finance companies. For analysing purposes 21 financial and accounting
ratios have been used and the ratios are divided into four heads: profitability, liquidity,
solvency and efficiency ratios. For analysing even more accurately, some key
performance indicators are also been used. MS Excel had been used for calculations,
tables and graphical presentations.
1.6 Limitations of the study The main
limitations of this study include:
▪ Preparing a fully accurate and complete report requires a good amount of
resources. But the information available is less than required.
▪ There is a very short span of time to get in-depth knowledge about these
companies.
▪ Officials of companies maintain a very busy schedule. So they were not always
able to provide enough time even if they had the intention to do so.
▪ The area covered by the report “Performance Analysis of Selected Finance
Companies of DSE” concerns a huge number of activities and it is very difficult to
sketch a total picture of the financial activities in a report of this scale.
▪ Some information was withheld to retain the confidentiality of these finance
companies.
▪ The information I had was somewhat different for each of the finance companies. It
was difficult to compare among these companies as some of the items of the financial
statements were calculated differently for each of these.
6
Chapter Two:
Literature review
7
Review of literature
Bank and non-bank financial intermediation are both key elements of a sound and stable
financial system. Both sectors need to be developed as they offer important synergies,
meant to foster economic growth. While banks dominate the financial systems in most
countries, business, households, and the public sector rely on the availability of a wide
range of financial products to meet their financial needs. Such products are not provided
only by banks, but also by finance companies, insurance, leasing, factoring, and venture
capital companies as well as mutual funds or pension funds (Marilen Pirtea, 2006). Deep
and broad financial markets facilitate savings mobilization, by offering both individuals
and institutional savers and investors additional instruments and channels for placement
of their funds at more attractive returns than are available on bank deposits. Though in
the initial stage bank financial institutions plays a vital role in mobilization of funds in most
of the countries, particularly in developing countries. However, the development of both
banks and non-bank financial institutions are necessary for assuring a strong and stable
financial system for the country as a whole (Pirtea, Iovu, & Milos, 2008; Raina & Bakker,
2003).
A financial system including both banking and non-banking sector is essential to an
economy because it is responsible for resource allocation. Levine (2005) suggests that,
well working financial intermediaries may positively affect economic development by
reducing transaction cost through four main channels: enhancing efficiency in
intermediation between borrowers and lenders, improving the allocation of resources,
increasing saving rate, promoting the development of markets and instruments that
enable risk sharing and facilitate economic growth (Sami Ben Naceur, 2014). In addition,
NBFIs add power to the economy in such a way that enhances the resilience of the
financial system to economic crisis (Carmichael & Pomcerleano, 2002). These NBFIs
offer wide range of products and services to mitigate the financial intermediation gap and
thereby, play an important complementary role of commercial banks in the society
(Shrestha, 2007; Sufian, 2008; Vittas, 1997).
A non-bank financial institution (NBFI) is a financial institution that does not have a full
banking license or is not supervised by a national or international banking regulatory
agency. NBFIs facilitate bank-related financial services, such as investment, risk pooling,
contractual savings, and market brokering. Examples of these include finance companies,
insurance firms, pawn shops, cashier’s check issuers, check cashing locations, payday
lending, currency exchanges, and microloan organizations. Finance companies
supplement banks by providing the infrastructure to allocate surplus resources to
individuals and companies with deficits. Additionally, it also introduces competition in the
provision of financial services. While banks may offer a set of financial services as a
packaged deal, finance companies unbundle and tailor these service to meet the needs
of specific clients. Additionally, individual Finance companies may specialize in one
particular sector and develop an informational advantage. Through the process of
unbundling, targeting, and specializing, Finance companies enhance competition within
the financial services industry.
8
A study on the Romanian Capital Market observed that, the activity of the banking system,
as well as the one of the Romanian capital market had an upward trend which is
correlated with the economic growth of Romania from the last few years. By having a
stable and healthy financial system the non-banking intermediaries as well as the banking
ones have developed for realizing important synergies at a national level (Marilen Pirtea,
2006).
Non-bank financial institutions (NBFIs) represent one of the most important parts of a
financial system. In Bangladesh, NBFIs are new in the financial system as compared to
banking financial institutions (BFIs). Starting from the IPDC in 1981, a total of 25 NBFIs
are now working in the country. As on June 30, 2001 the total amount of paid up capital
and reserve of 24 NBFIs stood Tk.6901.8 million (BB, 2002). The NBFIs sector in
Bangladesh consisting primarily of the development financial institutions, leasing
enterprises, investment companies, merchant bankers etc. The financing modes of the
NBFIs are long term in nature. Traditionally, our banking financial institutions are involved
in term lending activities, which are mostly unfamiliar products for them. Inefficiency of
BFIs in long-term loan management has already leaded an enormous volume of
outstanding loan in our country. At this backdrop, in order to ensure flow of term loans
and to meet the credit gap, NBFIs have immense importance in the economy. In addition,
non-bank financial sector is important to increase the mobilization of term savings and for
the sake of providing support services to the capital market (Shahiduzzaman, 2004).
The NBFIs are nowadays treated as an important sub-sector of the financial system,
which has been expanding rapidly and attaining importance on a continuous basis due to
their ability to meet the diverse financial requirements of business enterprises (Islam &
Osman, 2011). The development, growth and their changes over time as well as impact
on the economy have been analysed by many researchers to evaluate the structure of
the banking industry. Various changes in the banking industry initiated by the financial
reform policy make the analysis even more important to the policy makers. However, the
research on various issues of NBFIs remains substantially scarce (Sufian, 2008), in spite
of the fact that recent emergence of NBFIs as financial intermediaries is noticeable not
only in developed countries but also in developing countries. Empirical evidence to
evaluate the development and growth of the non-banking sector stays even more
insignificant, particularly in the context of developing countries.
The journey of NBFIs was started in 1981, ten years after the independence of the
country. A private sector NBFI, namely, Industrial Promotion and Development Company
(IPDC) was the pioneer in the sector in Bangladesh. Over the years, the non-banking
sector has grown in numbers as many state-owned, private, and joint-venture firms
started to join the sector, and by the end of 2010 a total of 35 firms were reported by the
Ministry of Finance as NBFIs. The size of the non– banking sector in respect of both
absolute and relative terms has also expanded. For instance, the absolute size of the
non-banking sector, measured in terms of assets, was BDT 78.84 billion in 2000 and by
the end of 2010 it became BDT414.11 billion (Ahmed & Chowdhury, 2007). On the other
hand, the relative size of the non-banking sector, measured in terms of assets relative to
gross domestic product (GDP), increased to 5.96 per cent in 2010 from 3.85 percent in
2000. Moreover, the importance of non-banking sector has been accelerated rapidly due
to the development of new areas of business operations like leasing,
9
term lending, housing and real estate financing, merchant banking, factoring, and so on
