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Role of fundamental determinant on company financial performance the case of lanka bangla finance
1. Internship Report
On
“The Role of Fundamental Determinants on Company Financial
Performance: The Case of LankaBangla Finance.”
Prepared By
S. M. Galibur Rahman
Id: 07882710
2nd Batch
Department of Finance
Jagannath University
Faculty of Business Studies
2. Submitted To:
Department of Finance
Jagannath University, Dhaka
Under the Supervision of
Md. Sogir Hossain Khandoker
Associate Professor
Department of Finance
Jagannath University
Submitted By:
S. M. Galibur Rahman
ID: 07882703
Session: 2007-2008
3. DECLARATION OF SUPERVISOR
This is to certify that the internship on “The Role of Fundamental Determinants on Company
Financial Performance: The Case of LankaBangla Finance.” has been submitted for the award of
the degree of Bachelor of Business Administration (BBA) from Department of Finance,
htannagaJ University, carried out by S. M. Galibur Rahman bearing ID.07882710 under my
supervision. To the best of my Knowledge and as per his declaration, any part of this report has
not been submitted for any degree, diploma or certificate.
He is permitted to submit the Internship Report.
------------------------------------------
Md. Sogir Hossain Khandoker
Associate Professor
Department of Finance
Jagannath University
[i]
4. DECLARATION OF STUDENT
I, S. M. Galibur Rahman, the student of Bachelor of Business Administration (BBA) 2nd Batch
P P
bearing ID: 07882710 from Department of Finance, htannagaJ University would like to somberly
declare here that an internship report on “The Role of Fundamental Determinants on Company
Financial Performance: The Case of LankaBangla Finance.” has been authentically prepared by
me. While preparing this internship report, I didn’t breach any copyright act intentionally. I am
further declaring that, I did not submit this report anywhere for awarding any degree, diploma or
certificate.
_______________________
S. M. Galibur Rahman
Id no: 07882710
Batch no.: 2nd
P P
Department of Finance
Jagannath University
[ii]
5. LETTER OF TRANSMITTAL
November 5, 2012
Md. Sogir Hossain Khandoker
Associate Professor
Department of Finance
Jagannath University, Dhaka
Subject: Submission of Internship Report.
Sir,
It is my pleasure to submit the internship report, which is done as a part of academic curriculum,
to you for your kind evaluation. The report is prepared on“The Role of Fundamental
Determinants on Company Financial Performance: The Case of Lanka Bangla Finance”.
I have put my best effort in preparing this report and to make it a worthy one. Each aspect of the
problem is considered and studied as required.
If any confusion arises or any further explanation is needed, I will be readily available to explain
the matter to you, as the situation required.
Sincerely yours,
______________________
S. M. Galibur Rahman
ID: 07882710
2nd Batch
Session: 2007-08
Email: galibju@gmail.com
[iii]
6. ACKNOWLEDGEMENT
First and foremost, I would like to pay my gratitude to the almighty Allah, the most Merciful, the
Beneficent, for blessing me with good health and tenacity of mind to complete the requirements
for the degree. I am also grateful to my parents who provided me with the basic necessities of
life since my early childhood.
I earnestly thank Md. Sogir Hossain Khandoker, Associate Professor, Department of Finance,
Jagannath University for acting as a mentor round-the-clock and showing me the right direction
whenever I started going off-track.
Nevertheless, I must express my gratitude to the following people for being so accommodative
that I never felt left-out during my whole intern journey:
1. Mr. Wali Ul Islam, Chief Executive Officer, LBSL
2. Mr. Md. Ashaduzaman Riyadh, Research Analyst & In-Charge, Research & Analysis
Department, LBSL
3. Md. Tareq Ibrahim, Research Analyst, Research & Analysis Department, LBSL
4. Md. Mahmudul Hasan Khan, In-Charge, Human Resource Department, LBSL
Finally, I thank all other LBSL staffs whose cooperation I found to be really kind and supportive.
[iv]
7. ABSTRACT
This project examines the determinants of the profitability of firms in the Non Banking Financial
Institution (NBFIs) industry of Bangladesh. Profitability of a financial institution basically
depends on its some key financial determinants. Specially operating efficiency is main
influencing factor which is calculated through operating income. Besides it capital Structure
composite of equity and liability, operating expense, total asset significantly affect the
profitability of any NBFI company. In addition term deposit also affects the profitability though
that is statistically not significant. My research is an attempt to find out the key determinants
variable and their level of influence over net profit.
Here in this report there are 5 chapters. In 1st chapter report origin, data sources, methodology,
limitation etc. have been given. In 2nd chapter the institution, where I did my internee has been
discussed. Then literature review of different research has been given in chapter 3. And chapter 4
is the main the part where I put both financial and statistical analysis have been given. And then
lastly findings and recommendation have been given in last and final chapter.
In case of financial analysis I did two types of analysis. Firstly company analysis where I took
LankaBangla Finance Ltd. data of last 4 years to do my company analysis. And then I took
whole NBFIs industry’s last 4 years data to do my industry analysis.
And then for statistical Analysis, different Statistical techniques of simple and multiple
regressions have been used to determine the relationships between variables. And before doing
regression analysis I did normality distribution test by Run test, and K-W test for randomness.
Also I did correlation analysis between dependent and different independent variables.
As the result suggest operating revenue has the most significant impact on the net profit of any
company so company should increase is operational efficiency. And also operational expense
negatively affects the net profit. So it should be controlled effectively. And all other fundamental
determinants significantly affect the company net profit. Only the term deposit impact is
statistically insignificant.
[v]
8. Table of Contents
Topic Page
CHAPTER 1: INTRODUCTION 01-03
1.1 Origin Of The Report 01
1.2 Objectives 01
1.3 Scope Of The Report 02
1.4 Sources Of Information 02
1.5 Methodology 03
1.6 Data Analysis & Presentation Technique 03
1.6 Limitation 03
CHAPTER 2: LITERATURE REVIEW 04-06
2.1 Literature Review 04-06
2.2 Research Gap 06
CHAPTER 3: INTRODUCTION TO LANKABANGLA SECURITIES 07-19
3.1 Company Profile with its History 07-08
3.2 Key Milestone 09
3.3 LBS Organogram 10
3.4 LBS Philosophy 11
3.5 Strategic Priorities 12
3.6 Unique Key Proposition 12
3.7 Services of LBS 13-14
3.8 Products of LBS 14-18
3.9 Financial Highlight of LBS 19
CHAPTER 4: METHODOLOGY & ANALYSIS 20-88
4.1 Company Analysis (LBFL) 20-32
4.1.1 Background of LBFL 20
4.1.2 Shareholding Pattern Analysis 21
4.1.3 Business Growth Analysis 22-23
4.1.4 Detailed Analysis of Key Financials 24-30
4.1.5 Financial Statement Analysis 31
4.1.6 Common Size Statement 32
9. 4.2 Industry Analysis (NBFIs) 33-47
4.2.1 Industry Snap 33-34
4.2.2 Market Capitalization of NBFI 35
4.2.3 Composition of Income 35
4.2.4 Income Growth 36
4.2.5 Industry Growth 37-38
4.2.6 Ratio of NBFIs Industry 39
4.2.7 Key Information of NBFI Industry 40-41
4.2.8 CAGR of all Company under NBFI Industry 42-42
4.2.9 BETA of all Company under NBFI Industry 44
4.2.10 Common Size Statement of NBFI Industry 45-46
4.2.11 Cost of Fund of all Company under NBFI Industry 47
4.3 Statistical Research part 48-88
4.3.1 Descriptive Statistics 51
4.3.2 Graphical Representation of Data & Frequency 52-62
4.3.3 Test of Randomness of all variable (Run Test) 63-66
4.3.4 Goodness of Fit test (K-W Test) 67-70
4.3.5 Mean Test Analysis (T-Test) 71-73
4.3.6 Correlation Test Analysis 74-77
4.3.7 Multiple Regression Model (Including F test) 78-88
Final Multiple Regression Model 88
CHAPTER 5: FINDINGS & CONCLUSION 89-91
5.1 Key Findings 89
5.2 Recommendation 90
5.3 Conclusion 91
BIBLIOGRAPHY 92 - 93
10. TABLE NO TABLE DESCRIPTION PAGE NO
Chapter 3: Introduction to Lanka Bangla Securities
Table 1 Company Glance (LBS) 07
Table 2 Financial Highlight (LBS) 19
Chapter 4: Methodology & Analysis
Table 3 Company Snapshot (LBFL) 20
Table 4 Share Outstanding Pattern of LBFL 21
Table 5 Sponsor Details of LBFL 21
Table 6 Growth Statistics 22
Table 7 Industry Snap (NBFI) 33
Table 8 Industry Growth Statistics (NBFI) 37
Table 9 Industry Information (NBFI) 40-41
Table 10 CAGR of all Company under NBFI Industry 42-43
Table 11 BETA of all Company under NBFI Industry 44
Table 12 Cost of Fund of all Company under NBFI Industry 47
Table 13 Descriptive Statistics of all Variable 51
Table 14-Table 20 Run Test of all Variable 63-66
Table 21 – Table 27 K-W Test of all Variable 67-70
Table 28 Mean Test of all Variable 71
Table 29 – Table 34 Correlation Test 74-77
Table 35 – Table 36 Multiple Regression Model Analysis 78-79
Table 37- Table 38 F-test, T-Test 80-81
Table 39 Multiple Regression Model at a glance 88
12. 1.1. ORIGIN OF THE REPORT
This report is prepared to fulfill the requirement for the completion of the Bachelor of
Business Administration (BBA), degree of the Jagannath University. The internship program is
carried on to provide the students an on the job exposure and to match up the theoretical
concepts with the real life situation. I was placed at LankaBangla Securities, Bangladesh for the
internship program under the guidance of Moh. Sogir Hossain Khandoker, my faculty advisor. I
have joined LankaBangla Finance Limited, Bangladesh for a period of 12 weeks starting from
September 10, 2012. As a requirement of the completion of the internship program I need to
submit the report, which includes an overview of the organization and both statistical and
financial research.
1.2. OBJECTIVE OF THE STUDY
The objective of the study may be viewed as:
General objective
Specific objective
1. 2. 1 GENERAL OBJECTIVES
This internship report is prepared primarily to fulfill the Bachelor of Business Administration
degree requirement under Department of Finance, Jagannath University and get an overall idea
of NBFIs sectors and its activity specially the performance of Lanka Bangla Finance.
1. 2. 2 SPECIFIC OBJECTIVES
More specifically, this study entails the following aspects:
To make fundamental company analysis
To analyze the profitability of LankaBangla Finance Limited with the help of different
statistical tools
To test the predetermined hypothesis relating to the financial performances of LankaBangla
Finance Limited, only regarding profitability
To make fundamental NBFIs industry analysis
Impact of Industry Performance on Lanka Bangla Finance.
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13. 1.3. SCOPE OF THE REPORT
The study would focus on the following areas.
Relationship of Net Profit with its fundamental determinants.
Company Analysis (LBFL) and whole financial industry,
Brief overview of Lanka Bangla Securities..
Each of the above areas would be critically analyzed in order to determine the regression model
and to build predetermined hypothesis.
1.4. SOURCES OF DATA
Information collected to furnish this report is both from primary and secondary in nature.
1.4.1 PRIMARY SOURCES OF DATA
The primary data of this report were collected through:
Direct interview & Conversation with the research analyst of the Research Department.
Practical experiences obtained from the corporate office of LBSL
Expert’s opinion.
Official records.
1.4.2 SECONDARY SOURCES OF DATA
I have gathered the secondary data via following sources:
Annual report of Lanka Bangla Finance ltd.
Printed outlines and documentation supplied by Lanka Bangla Finance ltd.
Annual Financial Statement of last 4 years of different NBFIs.
Analysis report of LBSL research and analysis department.
Website of Lankabangla Finance (http://www.lankabangla.com/).
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14. 1.5. METHODOLOGY
The data for this study was gathered from the annual financial statements published by the
LankaBangla Finance Limited in some selected internal magazines to accomplish the aforesaid
objectives. The Quarterly and annual data for the selected NBFI during 2008 to 2012 are used in
order to assess the profitability of the bank. Any progress of LankaBangla Finance Limited
thereafter is thus out of the scope of the report. Help of other sources like annual report,
magazines, brochures, journals, newspapers, websites, etc. have also been chosen whenever
found necessary. This paper is based on secondary data collection.
In processing the data, various methods of conventional statistics were deployed. Frequency
distribution, measures of central tendency and dispersion, time series analysis, simple correlation
and multiple regression analysis, correlation matrix and ANOVA in some cases calculated data
are presented in graph to give the reader a better understanding of financial components.
Kearl-Pearson correlation coefficient also used to investigate the correlation between the
variables at 5% level of significance according to the SPSS software package. Microsoft excel
was also used to produce some graphs and charts.
1.6. DATA ANALYSIS & PRESENTATION
TECHNIQUE
In order to analyze gathered data, I plan to use statistical software like SPSS that will run z-test,
t-test, regression and such. Besides SPSS I will use MS-Excel to generate charts and graph of
different ratio analysis. The data will be presented through graphs for better visual
understanding.
1.7. LIMITATION
I have faced some usual constrictions throughout my internship program to some extent that I are
presented as follows:
Primary data is always hard to work on because of authenticity.
Time is another hindrance to prepare a quality report.
Power failure is another main restraint to prepare this report
And scarcity of information is always a common hindrance to prepare any types of
report.
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16. 2.1. LITREARATURE REVIEW
To get an insight of profitability determinants, several studies have been executed up to till date.
But the fact suggests that, most of the researches have been conducted on banking industry. So,
the evident with regard to profitability is scarce in the NBFI sector.
FadzlanSufian, and RoyfaizalRazali Chong (2008) examined the determinants of Philippines
banks profitability during the period 1990–2005. Their empirical findings suggest that all the
bank-specific determinant variables have a statistically significantly impact on bank profitability.
They also found that size, credit risk, and expense preference behavior are negatively related to
banks' profitability, while non-interest income and capitalization have a positive impact.
According to their analysis inflation has a negative impact on bank profitability, while the impact
of economic growth, money supply, and stock market capitalization have not significantly
explained the variations in the profitability of the Philippines banks.
Shah-Noor Rahman and Tazrina Farah (2012), in their research paper on “Non Bank
Financial Institution’s Profitability Indicators: Evidence from Bangladesh” examined the
indicators of the profitability of firms in the Non Banking Financial Institution (NBFIs) industry
of Bangladesh. Their finding was profitability indicator variables have impact upon net profit.
And there variable was Net profit as dependent variable and Current Asset, Financial Expense,
Long term liability, Interest Income, and Operating revenue as independent variable. According
to their report among the independent variables the Liquidity Condition and Operating Efficiency
exert significant influence on Profitability of Non Bank sector in Bangladesh.
Fadzlan Sufian (2009) in his research paper title “Determinants of non-bank financial
institutions' profitability: empirical evidence from Malaysia” analyzed the determinants of
profitability on NBFIs in developed country. He found that “Malaysian NBFIs with a higher risk
exhibits lower profitability level. On the other hand, the large Malaysian NBFIs with high
operational expenses exhibits higher profitability level, thus supporting the expense preference
behavior hypothesis”. He also suggested that specialization has no significant relationship with
Malaysian NBFIs profitability.
James W. Scott and José Carlos Arias (2011) in their study” Banking profitability
determinants” surveyed top five bank holding companies in the United and concluded that
profitability determinants for the banking industry include positive relationship between the
return of equity and capital to asset ratio as well as the annual percentage changes in the external
per capita income. There was also a virtual consensus identified concerning the effect that the
internal factor of size as measured by an organization’s total assets had on its ability to compete
more effectively, even in times of economic downturns.
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17. Christos K. Staikouras & Geoffrey E. Wood (2011) examined the factors that that influence
the profitability of financial institution in their research paper “The Determinants of European
Bank Profitability”. Their main finding was “the rate of return earned by a financial institution is
affected by numerous factors. These factors include elements internal to each financial institution
and several important external forces shaping earnings performance. The type of explanation
would determine possible policy implications and ought to be taken seriously”. Their paper
quantifies how internal determinants (“within effects” changes) and external factors (“dynamic
reallocation” effects) contribute to the performance of the EU banking industry as a whole in
1994-1998.
Balchandher K. Guru, J. Staunton & B. Shanmugam (2009) in this research paper
“Determinants of commercial bank profitability in Malaysia” examined to what extent are the
profitability performance disparities due to variations in management controllable internal
factors and external factors. He took net profit as his dependent variable and Asset Composition,
Capital, Deposit Composition, Expenses Management, Liquidity, Firm Size, Inflation Rate,
Market Growth, Market Interest, Market Share and Regulation as his independent variable. He
suggested that all variable has significant relationship with net profit. And also he added that in
order to increase profitability the Expense Management should be proper as this variable
significance is very high.
Demirguc-Kunt & Huizinga (2001) and Bikker and Hu (2002) find a negative relationship
between stock market capitalization and banks’ profitability, it means that equity and bank
financing acts as substitutes rather than complements. In case of the industry-specific factors, the
Structure- Conduct-Performance premise point out that growing market power enhances the
profitability (income) of banks.
Antonina Davydenko(2011) surveyed about 3236 bank-quarter observations and concluded that
Ukrainian banks suffer from low quality of loans and do not manage to extract considerable
profits from the growing volume of deposits. Despite low profits from the core banking activities
James W. Scott and José Carlos Arias (2011) in their study” Banking profitability
determinants” surveyed top five bank holding companies in the United and concluded that
profitability determinants for the banking industry include positive relationship between the
return of equity and capital to asset ratio as well as the annual percentage changes in the external
per capita income. There was also a virtual consensus identified concerning the effect that the
internal factor of size as measured by an organization’s total assets had on its ability to compete
more effectively, even in times of economic downturns.
Nadim Jahangir', Shubhankar Shill and Md. AmlanJahidHaque(2007) surveyed 15
commercial banks in Bangladesh and found that market concentration and bank risk do little to
explain bank return on equity, whereas bank market size is the only variable providing an
explanation for banks return on equity in the context of Bangladesh. They found that market size
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18. and bank's return on equity proved to have strong relationship. Also, a strong and significant
relationship was identified between market size and bank's return on equity. It suggests that
capital adequacy is important for a bank to be profitable.
2.2 RESEARCH GAP
After reading several research papers I found that no one has yet made any research paper on
effect of internal determinants on company’s profitability in Bangladesh. In fulfilling that gap
my research paper will play a significant role. As my research paper deals with role of
fundamental determinants on company performance, so everyone will get an overall idea about
how the fundamental determinants affect the company’s profitability. It never can be taken as the
conclusion rather as the beginning of research topic.
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20. 3.1 COMPANY PROFILE WITH
ITS HISTORY
Company At a Glance
1 Date Of Corporation 3rd July, 1997
2 Year of Commencement 3rd July, 1997
3 Registration No C 33276(22)/97
4 Authorized Capital Tk. 1,000 million
(Pre IPO)
5 Paid up Capital Tk. 550 million
6 Financial Year January-
December
Table #1: Company Glance
LankaBangla Securities Limited (LBSL) is a subsidiary of LankaBangla Finance Limited and a
leading equity brokerage house in the country with a diverse clientele of institutions, high net
worth individuals, foreign funds and retail investors. The company commenced stock broking
activities in 1997 and has over time become the largest stock broking company in the country
having developed a strong team of highly skilled and experienced professionals.
LBSL (Formerly known as Vanik Bangladesh Securities Ltd) started its stock broking business
in 1997 trading on the Chittagong Stock Exchange (CSE) Ltd, while commencing trading on the
Dhaka Stock Exchange (DSE) in1998. The company was renamed LankaBangla Securities with
effect from 27 April 2005 following a restructuring of the company.
Its scrupulous investment in time and labor to create a better investment pathway for investor in
the Bangladesh Stock Market has made it become the leading equity brokerage house in the
country. It began as Vanik Bangladesh Securities Ltd in 1997 with its activities confined only
within the Chittagong Stock Exchange (CSE) Ltd.
A year later, it made a step ahead and introduced itselves to the Dhaka Stock Exchange (DSE). It
rebranded itself as LankaBangla Securities Ltd. in 2005 following a restructuring of the
company. At LankaBangla Securities Limited, it specializes in developing the country’s most
efficient stock brokerage workforce with unmatched skills and consummate perfectionism. Also,
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21. whichever corner of Bangladesh customers are in, it has got everyone covered as customer can
find its eleven branches spread in the leading cities and towns countrywide.
It is the leader in terms of customer transactions. That’s why it was again crowned as the largest
brokerage house in terms of transaction value for the 6th consecutive time in DSE and 7th
consecutive time in CSE in 2011. Quality, convenience, and reliability are certain things that it
provides its customer at the highest level. Customer can expect from his broker and that is the
key to such a strong network of key clients all over the world. Furthermore, the local and
international recognitions from financial institutions, custodian banks, corporations, international
fund managers, and other fellow brokers for our professionalism has laid the foundation of its
future growth and further success.
Its ability to meet the demands considering every client’s time horizon, goals, and risk tolerance
has made its settle relations with thousands of retail and institutional clients all over the globe. It
is a 90.91% owned subsidiary of LankaBangla Finance Limited (LBFL) which is one of the
leading listed non banking financial institutions in Bangladesh engaged in Leasing, Credit Card
Services, Merchant Banking, Corporate Financing, and Financial Consultancy. LBFL is owned
by a group of highly successful local business entrepreneurs of Bangladesh, the Sampath Bank
Limited of Sri Lanka, the One Bank Limited of Bangladesh, and the general public. With all
these on the back, our house LBSL is undoubtedly a global one which knows cusotomers
preferences and guarantees cusotomer the most comfortable investment environment while
anyone choose to invest in Bangladesh.
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22. 3.2 KEY MILESTONE
1997 • Started Stock Broking Business through CSE
• Started Stock Broking Business through DSE
1998
• Renamed as LBSL from VBSL with effect from 27th April
2005
• Inaugurate Integrated Back Office Software System first ever in Bangladesh
2008 Capital Market in 2008
• Tagged with BDJOBS for stock market training as a part of CSR
• Achieved “BEST IT USE AWARD-2009” from Bangladesh Association of
2009 Software & Information Services (BASIS)
• Converted from Private Limited to Public Limited Company
• Taken Over Directorship of MIDAS Financing Limited
• Tagged with BDJOBS for stock market training as a part of CSR
2010 • Sponsor Shareholding of Financial Excellence Limited
• Secured 1st position in DSE in the last consecutive five years and CSE in the last
2009 consecutive six years
2011 • Increased paid up capital
• Introducing a full-fledged FinancialWeb Portal & OrderManagement Systemfor
2012 the first timein Bangladesh
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24. 3.4 LBSL PHILOSOPHY
Vision of LBSL:
Growing together with our stakeholders by implementing the most comprehensive, efficient
and state of the art brokerage platform to maintain the excellence and maximize the wealth of
shareholders.
Mission of LBSL:
Providing Quality Product and Services
Ensuring the Use of State of the Art Technology
Being the Hub of International Investment
Demonstrating Comprehensive Integrity with Market
Maintaining Corporate Governance
Promoting Research and Analysis
Involving in Continuous Process Improvement
Goals of LBSL:
“To lead by example through a commitment that empowers the organization at every level to
strive for the highest levels of quality, customer care and stakeholder value. To be the most
sought after facilitator in creating wealth. To optimize the value of being our Customer,
Shareholder or Employee. To establish strong regional presence”
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25. 3.5 STRATEGIC PRIORITIES
LBSL has some strategic priorities which it believes to be maintained in operating the
organization. These are
Offloading share to the equity market as soon as possible.
Expand its business all over the country by opening new branches.
Diversifying operation through strategic investment in other organization and in bond
market.
Further improvement of asset quality.
Smooth penetration in the capital market.
Updating back office software as well as develop new software to support internet trading
and swift data processing.
Arranging different business promotion program such as road show in side as well as outside
of the country, international capital market investor conference etc.
Train up employees through attending in national and international training program to
enrich their competence.
To become cost efficient organization.
Increase intrinsic value of the company by strengthening internal controls through
installation of clearly laid down policies, procedures and processes.
Strengthen risk management.
Increased and focused Corporate Social Responsibility (CSR).
3.6 UNIQUE KEY PROPOSITION
OF LBSL
Exceptional quality and professionalism in its service offering to clients
An experienced and dedicated senior management team
A trained and professional sales team
A competent equity market research unit
The widest network of local branches (Dhaka, Chittagong & Sylhet)
Ability to provide a one stop service offering at all its branches
State of the art technology utilized in trade execution and back office and reporting systems
International affiliation
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26. 3.7 SERVICES OF LBSL
LankaBangla Securities Limited offers various kinds of services all over the country, which
includes the followings:
1. Brokerage Services
“Trade Execution Service” for clients in Dhaka and Chittagong Stock Exchange
Trading of portfolio accounts maintained with the Merchant Banking Division of
LankaBangla Finance Limited and IDLC Finance Ltd.
Custodial Services provided for clients for safe custody of securities.
Extend credit facilities through Margin Trading.
2. Trading Facility through NITA (Non Resident Investor’s Taka Account)
LBSL has successfully launched services of NITA Trading through which Non-Resident
Bangladeshis (NRBs) are able to transact under Non-resident Investor's Taka Account (NITA).
The Company is also dedicated to use extensive recourses to offer new products and services to
the existing clients and also to attract new clients. Our choice of an object oriented approach and
using the latest technology has given us the flexibility to extend our product & service range as
well as ensuring performance, security and scalability.
3. Internet Trading
Since CSE has introduced Internet Trading System in Bangladesh and simultaneously LBSL has
adopted this trading facilities for its distance clients for trade execution. In addition our steps
toward internet trading through CSE TWS not only enriching the door of potential clienteles but
also ensuring our participation in the development of Bangladesh Capital Market.
4. CDBL Services
Full Depository Participant (DP) Service.
BO (Beneficial Owner) account opening and maintenance.
Dematerialization and Re-materialization of securities.
Transfers and transmission of securities through CDBL.
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27. 5. Research Services:
LankaBangla Securities Ltd is supported by a competent research team that provides services
among others included:
Economic, market, sector and listed company research reports.
A daily stock market report and market commentary.
A monthly publication on the equity market.
Customized economic and capital market related research.
Designing of training & development sessions related to the capital markets.
6. Trade Execution Service:
LankaBangla Securities Limited provides Trade Execution Service to the clients in the both
Dhaka Stock Exchanges & Chittagong Stock Exchanges.
3.8 PRODUCTSS OF LBSL
1. CTA (Cash Trading Account)
Definition:
CTA (Cash Trading Account) is a facility that is provided to clients for trading with their own
finance.
Features:
Orders can be received through email, telephone or fax.
Trade execution confirmation is provided to client.
Regular emailing of Portfolio Statement.
Eligibility:
Any citizen of Bangladesh.
Age must be above eighteen.
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28. Document Requirement:
Fo r Inst it ut ional Trading Acco unt :
Board Resolution.
Memorandum and Articles of association.
Specimen signature of account operators.
Letter of Authorization.
A valid photo ID of the Managing Director.
Valid photo ID of Account Operator(s).
For Ind ividual Trad ing Account :
Acco unt Opening Form and S ignat ure Card duly filled up.
Valid passpo rt or nat ional ID card photocopy.
Two co pies passport size photograph of account holder.
One copy passport size photo graph o f aut horized p erso n ( if
any).
2. FTA(Foreign Trading Account)
Definition:
FTA ( Fo reign Trading Account ) is a facilit y t hat is provided to t he foreig n
inst it ut io nal client s, compr ising o f d ifferent fu nds, int ernat io nal bro kers, bank s
et c, who are int erest ed in t rading Bangladeshi secur it ies.
Features:
Dedicated booth for foreign trades with access to Bloomberg terminal on the trading
desk.
Orders can be received through email, Bloomberg EMSX, IB, fax.
Trade execution confirmation can be provided through email, Bloomberg EMSX, IB, fax
(according to client preference).
Settlement done through DvP – RvP basis.
Execution updates are provided time to time
Eligibility:
Fo reign int uit ional client s only.
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29. Document Requirement:
Board resolution authorizing the account opening and the signatories to sign on behalf of
the company.
Specimen Signature (included separately or in attached account opening form).
Copy of the Memorandum and Articles of Association.
Copy of the Certificate of Incorporation.
One Copy of a valid photo ID of each account operator.
Valid photo ID of the CEO/Managing Director of the company
3. MTA (Margin Trading Account)
Definition:
MTA (Margin Trading Account ) is a facilit y t hat is provided to client s fo r
trading wit h margin loan. The margin loan and int erest rat e can be var ied wit h
respect to market co nd it io n.
Features:
Orders can be received through email, telephone or fax.
Trade execution confirmation is provided to client.
Regular emailing of Portfolio Statement.
Eligibility:
Any cit izen of Bangladesh.
Age mu st be abo ve eig ht een.
Document Requirement:
Fo r Inst it ut ional Trading Acco unt :
Board Resolut ion.
Memorandum and Art icles o f asso ciat io n.
Specimen sig nat ure of account operators.
Lett er o f Aut horizat ion.
A valid p hoto ID of t he Managing Direct or.
Valid pho to ID of Account Operator(s).
16 | P a g e
30. For Ind ividual Trad ing Account :
Acco unt Opening Form and S ignat ure Card duly filled up.
Valid passpo rt or nat ional ID card photocopy.
Two co pies passport size photograph of account holder.
One co py passport size photograph of aut horized perso n ( if
any).
4. NITA (Non Resident Investors Taka Account)
Definition:
NITA (No n Resident Investo rs Taka Account) is a facilit y t hat is provided t o
no n-resident ind ividuals/ inst it ut ions including non-resident Bangladesh i
nat io nals who are int erest ed in t rading Bangladeshi secur it ies against foreig n
exchange remit t ed fro m abro ad.
Features:
Non-resident portfolio investors have to open a Non-resident Investors Taka Account
(NITA) with any authorized dealer in Bangladesh funding the purchase and easy
repatriation of the sales and income proceeds.
Securities can be purchased only through a member/registered broker of the stock
exchange. E.g. LankaBangla Securities Ltd. (LBSL). However, public issues not yet
listed in a stock exchange can be bought directly from the issuing company.
For the purpose of trading securities, investors need to open a security account/trading
account with stock broker listed with the exchanges. E.g. LBSL
Funds from NITA can be used to purchase shares and securities listed in a stock
exchange.
The balances in this account are freely remittable abroad in foreign exchange.
Eligibility:
Non-Resident individuals (Foreigners and NRBs).
Foreign intuitions.
Institutions located abroad which are owned by NRBs.
17 | P a g e
31. Document Requirement:
For Institutional Trading Account:
Company NITA A/C number with custodial bank or A/C statement.
Board Resolution.
Memorandum and Articles of association.
Specimen signature of account operators.
Letter of Authorization.
A valid photo ID of the Managing Director.
Valid photo ID of Account Operator(s)
For Individual Trading Account:
Account Opening Form and Signature Card duly filled up.
Individual NITA A/C Number with custodial bank or A/C statement.
Valid passport or national ID card photocopy.
Two copies passport size photograph of account holder.
One copy passport size photograph of authorized person(if any).
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32. 3.9 FINANCIAL HIGHLIGHTS OF
LBSL
Million BDT
Particulars 2011 2010 2009 2008 2007
Revenue from brokerage 758.51 1886.9 842.74 376.28 204.10
Capital gain from investment in share 11.94 86.38 9.92 5.37 0.00
Interest Income 82.93 69.19 19.32 14.37 22.39
Operating Income 1231.06 2,096.79 877.84 397.30 219.52
Profit before tax 1066.57 1811.05 698.27 277.84 140.07
Profit after tax 747.62 1,530.59 638.15 252.82 126.82
Shareholders’ equity 4716.76 4,402.27 1612.64 481.09 228.27
Total asset 7698.24 6,535.55 2012.44 602.93 291.98
Return on Equity 15.85% 34.77% 39.58% 52.55% 55.56%
Table #2: Financial Highlight of LBSL
Analysis:
LankaBangla Securities Limited (LBSL) has lost its net profit in 2011. But it earn an astounding
139.85% growth in Net Profit in 2010 to BDT 1530.58 million largely backed by a quantum
growth of 123.91 percent of Brokerage Income. Further analysis of Net Profit in 2011 decrease
by 70% reveals that LBSL has been able to control its operating expenses which have decreased
by 8% percent only. The balance sheet of the company strengthened in 2011. Shareholders’
Equity increased by 7% in 2011. Finally the Balance Sheet size of LBSL i.e. Net Total Asset
increased significantly by 15% and reached at BDT 7698.24 million as on 31 December, 2011.
19 | P a g e
34. Research Introduction
In this report I divided the research part in to two segments. First is financial analysis and second
is statistical analysis.
1. Financial Analysis: Here I include company and industry analysis.
i. Under company analysis I did all sorts of fundamental analysis. And all
sorts of graph, growth statistics, common size statement analysis etc. have
been included in the company analysis.
ii. Under industry analysis percentage of market capitalization, beta, industry
growth, and financial statement analysis etc have been included.
2. Statistical Analysis: Here descriptive analysis of all variable, run test, goodness of fit
test, correlation, and a multiple regression model have been included.
20 | P a g e
36. 4.1.1. BACKGROUND OFLANKA BANGLA
FINANCE LIMITED (LBFL)
Company Snapshot
Paid-up Capital (BDT mn) 1894.00
No of Securities (mn) 189.41
Float 61.23%
Capitalization (BDT) 13978.34
Reserve and Surplust (BDT) 3558.71
rd
Adjusted Price Range (3 Jan, 10 to 7 Oct, 12) 107.9 – 67.7
Face Value 10.00
rd
Average Daily Turnover (3 Jan, 10 to 7 Oct, 12) 778507.5
Market Lot 500.00
Category A
st
Year End 31 December
Table #3: Company Snapshot (LBFL)
LankaBangla Finance Limited (LBFL) a joint venture financial institution established with
multinational collaboration is in operation since 1997 having license from Bangladesh Bank
under Financial Institutions Act, 1993. With institutional shareholding structure, educated &
motivated human resources, friendly working environment & dynamic corporate culture has
enabled LBFL to be a diversified financial services providing institution of the country.
Technical support provided by Sampath Bank Limited, Sri Lanka has been working as a catalyst
to emerge LBFL as most innovative financial solution provider strictly in compliance with the
rules & regulations of Bangladesh Bank.
Under the right direction of the resourceful management the company has emerged as one of the
leading Financial Institutions in the country. Lanka Bangla is the lone Non-Banking Financial
Institution who operates MasterCard & VISA card including third party processing business with
other banks. The company is also involved in dealing with Securities as Broker in Capital Market
at both DSE & CSE through its Subsidiary named “Lanka Bangla Securities Limited” who is the
business leader in this arena. The Merchant Banking Department has been converted into another
subsidiary of Lanka Bangla Finance to comply with the statutory regulations who is catering to
the premier investment banking services.
20 | P a g e
37. 4.1.2. SHARE-HOLDING PATTERN ANALYSIS
Share-outstanding Pattern
Share-Outstanding
Sponsor / Director 38.77
Govt 0 Pattern
Institute 0 Sponsor / Director Govt
Foreign 0
Institute Foreign
Public 61.23
Public
Table #4: Share-Outstanding Pattern (LBFL)
39%
Out of 189408450 shares 38.77 percentages of 61%
0%
shares which is equal to 73433657 numbers of 0% 0%
shares is being held by the sponsor director of
the company and rest 61.23% which is equal to 115974793 shares is being regularly traded
among the general public people. The government holding and institute investors have no shares
in their name. Though it is not a good sign for the company that institutional investors are
reluctant to invest in this company but the company is fundamentally very strong. Because of the
excessive public holding the share price
fluctuation is very high of LBFL.
Sponsor Details
Sponsor Details
Foreign Sponsor Local Sponsor
a. Foreign Sponsor
Sampath Bank Ltd, Srilanka 9.47%
24%
b. Local Sponsor
One Bank Ltd. Bangladesh 4.86%
SSC Holding Ltd. Bangladesh 1.07%
1.84% 76%
Shanta Apparel Ltd.
Individual 21.52%
Table #5: Sponsor Details (LBFL)
The shares were listed with Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd, on
17 October, 2006 and 31 October, 2006 respectively and trading started in the both houses from
1 November 2006.
250.0
200.0
150.0
100.0
50.0
0.0
3-Sep-12
3-Nov-11
3-Sep-11
3-Mar-12
3-Nov-10
3-May-12
3-Sep-10
3-Mar-11
3-Jul-12
3-May-11
3-Mar-10
3-Jul-11
3-Jan-12
3-May-10
3-Jul-10
3-Jan-11
3-Jan-10
AdjustP a g e
21 | price graph for
LBFL
38. 4.1.3. BUSINESS GROWTH ANALYSIS
Business Growth Statistics
2008 2009 2010 2011
Net interest income 73.43% 34.06% 41.62% 64.44%
-
Investment income 36.99% 77.50% 155.79% 56.89%
- -
Commission and Brokerage income 98.09% 16.00% 101.37% 59.61%
- -
Operating income 11.80% 78.46% 112.02% 36.27%
-
Operating profit 91.69% 86.14% 150.06% 47.91%
-
Earnings Growth 80.33% 96.05% 147.19% 53.29%
Assets Growth 39.13% 65.21% 43.74% 15.83%
Equity Growth 54.43% 127.71% 128.04% 19.42%
Deposits Growth 68.72% 2.87% 16.44%
Loans & Advances Growth 37.70% 17.50% 10.19%
Table #6: Growth Statistics (LBFL)
Last 4 years Lanka Bangla Finance Ltd (LBFL) has seen continuous growth. Due to market fall
in 2010, the company has experienced tremendous growth fall in the following year. But if we
give a closer look in the table it can be infer that company is growing company. It has
significantly maintained a good acceleration rate. Despite world recession and liquidity crisis
company has continuously maintained a growth rate which enumerated that management
efficiency of the company is excellent.
Outlook for 2012
As the market is running bearish so cost of fund is decreasing so the net interest income will
increase significantly. But investment income from investing in share market will decrease
which is a big part of income composition. So overall income growth composing of all income
sources will decrease. And because of low cost of fund the amount of loan and deposit will
increase which will be good for the company.
22 | P a g e
39. By seeing all the graphical presentation it can be said that due to market crash all the growth is
negative in the year 2011 except net interest income and deposit. Which explains that for the
market crash or fall public tends to deposit more money which they found more secure than
investing in capital market. That ultimately increases the investable fund for the institution which
results in increase in net interest income.
200.00%
Net interest income
150.00%
100.00% Investment income
50.00%
Commission and Brokerage
0.00%
income
-50.00%
Operating income
-100.00%
-150.00% Operating profit
2008 2009 2010 2011
140.00%
120.00%
100.00%
80.00% Assets Growth
Equity Growth
60.00%
Deposits Growth
40.00% Loans & Advances Growth
20.00%
0.00%
2008 2009 2010 2011
Graphical Presentation of
Growth Statistics
23 | P a g e
40. 4.1.4 DETAILED ANALYSIS OF KEY FINANCIALS
Operating Income Analysis
LBFL Finance had robust operating income growth like most other NBFIs. It had
generated robust operating income growth of -11.80%, 78.46%, 112.02% and -36.27% in
the year of 20098, 2009, 2010and 2011. Major part of the operating income was
contributed from commission, exchange and brokerage. Second best contributor is net
interest income. Most of the operating income came from capital market segment. In total
49.53% of the total operating income was directly contributed from capital market
operation.
Outlook for 2012
Net interest income growth will remain slow due to increased cost of fund. Commission
exchange and brokerage income for LBFL finance is expected to increase slightly as the
average turnover in DSE and CSE has started to increase after the drastic fall occurred in
FY2010. There will some investment income as the key benchmark index has increased by
more than 25%.
200.00%
100.00%
Operation Income Growth
0.00%
150.00%
2008 2009 2010 2011 112.02%
100.00%
78.46%
50.00%
net interest income 0.00% -11.80%
-50.00% -36.27%
Income from investments 2008 2009 2010 2011
24 | P a g e
41. Net Interest Income Analysis
Paradox in Leasing Business
All the leasing companies are facing setback in their once prime business after
banks entry into this segment. Low cost of fund has enabled banks to charge low
interest against lease and term loan financing. Leasing business of LBFL Finance
has gone opposite of market trend. The interest earning of LBFL has increased
significantly at increasing growth rate, which is fully a paradox to the market.
Robust Margin Loan Growth
During the last 4 years like most other NBFIs IDLC Finance disbursed significant
amount of margin loan through its capital market wing. Till date IDLC has an
accumulated balance of 10,438 million margin loan.
Interest income from other segments
Finance companies are focusing their business to new interest income generating
segments. They are increasing their exposure in SME segment, personal finance,
and real estate finance. LBFL Finance trying to capture market share in SME and
term finance segments.
1200 Amount in ml
1000
net interest
800 income
600
400 Expon. (net
200 interest
0 income)
2008 2009 2010 2011
12000 Amount in ml
10000
8000
6000 Loans and
4000 advances/Investme
nt
2000
0
2008 2009 2010 2011
25 | P a g e
42. Invest ment Income
LBFL Finance has moderate contribution from investment income compared to other
leading NBFIs. Contribution of investment income is much higher in the after tax net
income. Most of the trading profits are shown in the income statement. This segment
represents the most volatile earning source. We expect this segments return to grow
or decline with the market movement. At 2011 the growth rate is negative due to the
significant downfall in Bangladesh Capital Market.
Outlook for 2012
As 2012 is the year of getting back the position of Bangladesh capital market, we
expect LBFL finance will show increase amount of income from the proprietary
income segment.
Income from investments Others
90.69% 90.74% 88.83% 92.44%
9.31% 9.26% 11.17% 7.56%
2008 2009 2010 2011
Commission Exchange and Brokerage
Brokerage division of LBFL has started with large market share. Now it has passed 15 years of its
brokerage business. It is in the top position for the last few years. And market share of its brokerage
is pretty high. Though the market has faced its greatest fall ever in the year 2010-2011 which results
negative growth rate in commission and brokerage income and with its skilled dynamic research
department it has achieved a distinct position in the market.
Banks are making their entry into the equity brokerage market. So now a days it is very competitive
for all brokerage houses to perform its business and fro LBSL it will difficulty to retain its top
position of brokerage field.
Outlook for 2012
In 2012 its contribution of securities brokerage is expected to increase as market is recovering from
the bearish trend. Though still it is hard to capture the bullish trend but market is now getting back its
normal trend. So it is very much expected that the revenue from brokerage commission is expected to
increase.
26 | P a g e
43. 2000
1500
Amount in ml
1000 Commission, excha
nge and brokerage
500
0
2009 2010 2011
Loans and Advances
Overall loan portfolio of LBFL Finance Ltd. has made robust growth during past few years. As the
equity market is going on bearish trend the amount of loan disbursement is increasing. Though the
acceleration rate is negative but the amount of loan disbursement is increasing at a decreasing rate. And
as the market goes well the acceleration rate will tend to be positive. That means the amount of loan
disbursement will increase at an increasing rate.
Outlook for 2012
Margin loan growth will be positive or higher. Term finance and lease finance growth may revive in
2012.
12000.00 40% Amount in ml
10000.00 35%
30%
8000.00 25% Loans and
6000.00 20% advances/Investment
4000.00 15%
Growth Rate
10%
2000.00 5%
0.00 0%
2008 2009 2010 2011
27 | P a g e
44. Deposit G ro wth & Cost of Fund
LBFL is one of the largest public deposits holding NBFI in the industry. Deposit collection growth
rate in 2009 was 68.72%, in 2010 it was 2.87% and in 2011 it was 16.44.Cost of fund on 2010 had
decline due to the ease of the money market and on 2011 it regain its past cost.
Outlook 2012
In the uncertain and volatile money market both the deposit collection cost and bank borrowing
cost will rise significantly. Bank borrowing will be difficult to obtain.
Amount in ml
Deposit Amount With Growth
6000.00 1
0.9
5000.00 0.8
4000.00 0.7
0.6
3000.00 0.5
0.4
2000.00 0.3
1000.00 0.2
0.1
0.00 0
2008 2009 2010 2011
Deposits and other
2627.30 4432.90 4560.00 5309.62
accounts:
Growth 68.72% 2.87% 16.44%
Cost of deposit
16.00% As the market is gaining its bullish trend so the cost
14.00% of fund is raising. So we can infer there is a
12.00% positive correlation between cost of fund and
10.00% capital market index. As the market index going up
8.00% so the cost of deposit and vice-versa.
6.00%
4.00%
2.00%
0.00%
2008 2009 2010 2011
Cost of
13.83% 11.58% 11.28% 13.98%
deposit
28 | P a g e
45. Asset Quality
LBFL Finance has modest amount of non-performing loan in its portfolio compared to other NBFIs.
Overall NPL ratio slightly declined to 6.51% from 7.90% in 2011. Provisioning coverage was also
very poor compared to industry average and banking industry. Provisioning coverage was only
1.45% compared to 1.41% in 2009. Though the absolute amount might have increased but relative
percentage increase was negative.
1000.00 9.00% Amount in ml
900.00 8.00% Non-
800.00 7.00% perfor
ming
700.00
6.00% loan
600.00 (ml)
5.00%
500.00
4.00%
400.00
3.00%
300.00 NPL
200.00 2.00% Ratio
100.00 1.00%
0.00 0.00%
2008 2009 2010 2011
Amount in ml Composition of Capital
16000 0.8 Deposits and
other accounts:
14000 0.7 By analyz ing t he growt h rat e
12000 0.6 it can be said t hat t he amo u nt
10000 0.5 of deposit is increasing but
Borrowings from
8000 0.4 not at an increasing rat e. The
other
6000 0.3 banks, financial growt h rat e was lo wer in
4000 0.2 institutions and 2010 due t o bullish mark et
agents but as t he market go es to
2000 0.1
Growth of Deposit bear ish t rend deposit gro wt h
0 0
2008 2009 2010 2011
rat e increased.
29 | P a g e
46. Total Asset Analysis
Total assets Total assets
30000.00 Expon. (Total
assets) By analyz ing t he growt h rat e
25000.00
it can be said t hat t he amo u nt
20000.00 of t ot al asset is increasing
15000.00 but not at an increasing rat e.
The growt h rat e was lower in
10000.00 2010 due t o bullish mark et
5000.00 but as t he market goes to
bear ish t rend t ot al asset
0.00
growt h rat e increased.
2008 2009 2010 2011
30 | P a g e
47. 4.1.5 RATIO ANALYSIS
OF LBFL
LBFl (company) Ratio
2008 2009 2010 2011
Liquidity Ratios (Times)
Current Ratio 1.46 1.32 1.18 1.15
Quick Ratio 1.28 1.17 0.99 0.96
Cash Ratio 0.06 0.26 0.25 0.34
Liquid Assets to Total Deposits 0.32 0.25 0.41 0.40
Loans (Gross)/ Total Deposits 2.23 1.82 2.08 1.97
Asset Quality Ratio
NPL Ratio 6.13% 5.38% 7.90% 6.51%
Provision Coverage 1.96 0.77 1.41 1.45
Non-performing loan (ml) 375.81 496.40 897.56 925.61
Growth Indicators
Net interest income 34.06% 41.62% 64.44%
Investment income 36.99% 77.50% 155.79% -56.89%
Commission and Brokerage income -98.09% 16.00% 101.37% -59.61%
Operating income -11.80% 78.46% 112.02% -36.27%
Operating profit 91.69% 86.14% 150.06% -47.91%
Earnings Growth 80.33% 96.05% 147.19% -53.29%
Assets Growth 39.13% 65.21% 43.74% 15.83%
Equity Growth 54.43% 127.71% 128.04% 19.42%
Deposits Growth 68.72% 2.87% 16.44%
Loans & Advances Growth 37.70% 17.50% 10.19%
Efficiency Ratios
Interest Expense/ Interest Income 74.81% 67.40% 63.46% 59.21%
Investment Income to Investment Assets 31.71% 7.82% 15.34% 4.26%
Interest Yield 14.17% 13.93% 14.25% 18.93%
Cost of Funds 13.83% 11.58% 11.28% 13.98%
Net Spread 0.34% 2.35% 2.97% 4.95%
Net interest margin 3.85% 5.49% 6.01% 7.89%
Profitability Indicators
ROA(Return on Assets) 4.66% 5.54% 8.80% 3.53%
ROAA (Return on Average Asset) 25.34% 33.25% 33.16% 10.50%
Price Earnings Ratio (times) 20.04 22.41 15.56 17.72
ROE (Return on Equity) 40.94% 35.42% 35.49% 13.83%
Net Profit Margin 45.44% 49.92% 58.21% 42.66%
Gross Profit Margin 68.49% 71.43% 84.25% 68.87%
31 | P a g e
48. 4.1.6 COMMONSIZE
STATEMENT OF LBFL
Last 4 years common size statement of Lanka Bangla finance Limited:
Common size Statement (percentage of Total Asset)
Statement of financial Position 2008 2009 2010 2011
Property and assets
Cash: 0.44% 0.40% 0.48% 0.53%
Balance with other banks and financial institution 10.02 7.70 9.14 9.04
Money at call and short notice/Placement with banks & other
financial institution 0.00 0.00 0.00 0.00
Investment in shares & securities 3.01 13.13 11.90 15.95
Loans and advances/Investment 71.95 59.97 49.02 46.64
Land, building, furniture and fixtures (including leased assets) 1.05 0.69 1.01 0.84
Other assets 13.54 18.11 28.45 27.00
Total assets 100.00% 100.00% 100.00% 100.00%
Shareholder's equity & Liability
Borrowings from other banks, financial institutions and agents 39.47 37.82 32.87 37.78
Deposits and other accounts: 32.29 32.98 23.60 23.72
Other liabilities 16.90 13.58 16.96 11.27
Total liabilities 88.66% 84.37% 73.43% 72.78%
Shareholder's equity 11.34 15.63 24.79 25.56
Minority Interest 0.00 0.00 1.78 1.66
Total liabilities and shareholders' equity 100.00% 100.00% 100.00% 100.00%
Income Statement 2008 2009 2010 2011
Net interest income 2.93% 5.08% 7.19% 11.82%
Income from investments 0.96 1.70 4.34 1.87
Commission, exchange and brokerage 0.00 11.55 23.25 9.39
Other operating income 6.38 0.00 4.06 1.67
Total operating income 10.26 18.32 38.84 24.75
Total operating expenses 3.23 5.23 6.12 7.70
Profit before provision against loans and advances 7.03 13.09 32.72 17.05
Total provision 1.21 1.92 4.07 1.02
Profit for the year before taxation 5.82 11.16 28.65 16.03
Provision for tax 1.16 2.02 6.04 5.47
Net profit after tax for the year 4.66 9.14 22.61 10.56
Source: Annual Financial Statement
32 | P a g e
50. 4.2.1. INDUSTRY SNAP NON BANKING
FINANCIAL INSTITUTION (NBFIs)
Industry Snapshot
Paid-up Capital (BDT mn) 20438.96
Number of listed Company 22
Capitalization (BDT) 163,911,375,872
Sector PE 19.1
Sertor Earning 8,714,468,569
Sector Beta 0.905396574
Table #7: Industry Snapshot
Financial institution sector is the 4th highest sector in term of market capitalization. Non-Bank
Financial Institutions (NBFIs) are those institutions that are licensed and controlled by the
Financial Institutions Act of 1993 (FIA 93). NBFIs give loans and advances for industry,
commerce, agriculture or housing; carries on business of hire purchase transactions including
leasing of machinery or equipment; involves in business of the underwriting or acquisition of, or
the investment or re-investment in shares, stocks, bonds, debentures or debenture stock or
securities issued by the government or any local authority; finances venture capital; gives loan
for house building and property purchases and uses its capital to invest in companies. The major
differences of NBFIs with commercial banks are that the former cannot accept any deposit which
is payable on demand by cheques, drafts or orders drawn by the depositor and cannot deal in
foreign exchange. Starting from the IPDC in 1981, a total of 29 NBFIs are now working in the
country as of October, 2012. And out of 29 NBFI 22 companies are listed at DSE and CSE.
The lease financing practices in Bangladesh have grown significantly within the last 10 years.
Competition among the leasing companies has grown stronger with the growth of the NBFIs,
besides entrance of commercial banks in the lease financing market who have the advantage of
lower costs of fund compared to the NBFIs. Currently, out of 29 NBFI, 22 specialize in lease
financing. As per central bank data released in May 2011, lease financing constituted 64.5% of
total long term assets, with the rest consisting mainly of term financing.
For NBFIs the prime sources of funding are loans from commercial banks and other financial
institutions, term deposits from the public, funds from capital market by issuing shares,
debentures, bonds etc. and loan facilities from the international agencies like ADB, IDA, IFC
etc. NBFIs are mostly dependent on funds from the credit lines of the commercial banks at a
relatively higher rate of interest ranging up to 15%. Moreover, they have to provide high and
expensive collateral securities like fixed deposits at the time of borrowing fund from the
commercial banks. Raising fund from capital market is a prospective way to reduce dependency
on borrowed funds and boost up the activities of NBFI’s in an efficient manner.
33 | P a g e
51. The financial system of Bangladesh is comprised of three broad fragmented sectors:
1. Formal Sector,
2. Semi-Formal Sector,
3. Informal Sector.
The sectors have been categorized in accordance with their degree of regulation.
The formal sector includes all regulated institutions like Banks, Non-Bank Financial Institutions
(NBFIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant
Banks etc
The semi formal sector includes those institutions which are regulated otherwise but do not fall
under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange
Commission or any other enacted financial regulator. This sector is mainly represented
by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli
Karma Sahayak Foundation (PKSF), and Samabay Bank, Grameen Bank etc., Non
Governmental Organizations (NGOs and discrete government programs.
The informal sector includes private intermediaries which are completely unregulated.
Non Bank Financial Institutions (NBFIs) are those types of financial institutions which are
regulated under Financial Institution Act, 1993 and controlled by Bangladesh Bank. Now, 31
NBFIs 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, 13 were initiated by private
domestic initiative and 15 were initiated by joint venture initiative. Major sources of funds of
NBFIs are Term Deposit (at least six months tenure), Credit Facility from Banks and other
NBFIs, Call Money as well as Bond and Securitization.
The major difference between banks and NBFIs are as follows:
• NBFIs cannot issue cheques, pay-orders or demand drafts.
• NBFIs cannot receive demand deposits,
• NBFIs cannot be involved in foreign exchange financing,
• NBFIs can conduct their business operations with diversified financing modes like
syndicated financing, bridge financing, lease financing, securitization instruments, private
placement of equity etc.
If we consider the case of LankaBangla Finance Limited, it has started its operation in 1996.
Since then, the NBFI is excelling in a rapid manner. The growth of capital and cliental base has
been tremendous. And LankaBangla not only established its reputation in the market, it is also
looking into the other spheres of banking as well. It has already opened merchant banking wing,
securities and asset management far. And it has a long term view to convert its total operation
into Investment banking system.
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52. 4.2.2 MARKET CAPITALIZATION OF NBFI
INDUSTRY
Out of 100% market capitalization 8% is covered by NBFI sector (on 11th October, 2012). That
is pretty high and ranks as number 4 in Bangladesh Capital Market.
.
4.2.3 COMPOSITION OF INCOME
The major source of income for any NBFI is interest income. Because every nbfi's main business
is giving different terms loans. so the major portion of income comes from interest income. And
as the graph suggests the amount of interest income is increasing day by day. Then second major
source is investment income is investment income. From the bar chart it can be clearly see the
amount of investment income was high in the year 2010 due to rapid index growth in DSE and
CSE. As the market was bearish in year 2011 we can see there is a acute fall of investment
income in the year 2011. Almost every major NBFI has brokerage or security extension like
lanka bangla finance has lanka bangla securities, IDLC has IDLC securities etc. So it is another
big source of income. Then also NBFI has income from dividend income and other operating
income.
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53. 30000.00
25000.00
Other Operating Inocme
20000.00
Dividend
15000.00 Commisssion, Exchange &
Brokerage
10000.00 Income from Invesetment
5000.00 Interest Income
0.00
2008 2009 2010 2011
Amount in ml
4.2.4 INCOME GROWTH
20000.00 1.5
15000.00 1
10000.00 0.5
5000.00 0
0.00 -0.5
2008 2009 2010 2011
Net profit after tax for the year Growth Rate
Amount in ml
The amount of industry income was highest in the year 2010 as the capital market was bullish
but as the market moved to bearish trend the amount of income tends to decrease. But the
situation might improve in the year 2012. Because slowly market is getting back its bullish trend.
And also world economy is recovering from the recession.
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54. 4.2.5 INDUSTRY GROWTH
Industry Growth Statistics
2009 2010 2011
Net interest income 14.64% 16.93% 26.72%
Investment income -4.32% 170.29% -39.80%
Commission and Brokerage income 174.76% 99.64% -38.57%
Operating income 23.08% 91.71% -16.70%
Operating profit 23.05% 104.10% -24.38%
Earnings Growth 51.84% 127.15% -30.66%
Assets Growth 128.42% 135.24% 112.46%
Equity Growth 136.57% 245.89% 115.23%
Deposits Growth 31.30% 20.09% 14.36%
Loans & Advances Growth 24.52% 29.75% 15.84%
Table #8: Industry Growth
Source: Annual Financial Statement analysis
Growth Analysis
100% By analyzing t he
growt h rat e it can be
80%
st at ed t hat except
60% invest ment inco me
40% Commission and all o t her co mpo sit io n
Brokerage income of inco me has
20% Investment income sig nificant ly fa l l
0% down due t o bear is h
Net interest income t rend of mark et .
-20%
-40%
-60%
2009 2010 2011
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55. 260.00%
240.00%
220.00%
200.00%
Assets Growth
180.00%
160.00%
140.00% Equity Growth
120.00%
100.00% Deposits Growth
80.00%
60.00% Loans & Advances
40.00% Growth
20.00%
0.00%
2009 2010 2011
Growth Analysis Continues
By analyz ing t he gro wt h rat e it can be st at ed t hat all t he major co mponent s
o f balance sheet are in declining t rend. Though t he amount of Tot al asset ,
depo sit , lo ans, equ it y are incr easing but at a decreasing rat e. As t he mark et
go es well and inco me st art s generat ing t he growt h rat e will be higher.
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56. 4.2.6 RATIO ANALYSIS OF
NBFI INDUSTRY
2008 2009 2010 2011
Liquidity Ratios (times)
Current Ratio 3.35 3.42 3.54 3.53
Quick Ratio 2.80 2.91 3.01 3.07
Cash Ratio 0.46 0.42 0.30 0.21
Loans (Gross)/ Total Deposits 1.40 1.33 1.44 1.46
Growth Indicators
Net interest income 23.98% 34.19% 24.88%
Investment income -4.32% 170.29% -39.80%
Commission and Brokerage income 174.76% 99.64% -38.57%
Operating income 23.08% 91.71% -16.70%
Operating profit 23.05% 104.10% -24.38%
Earnings Growth 51.84% 127.15% -30.66%
Assets Growth 28.42% 35.24% 12.46%
Equity Growth 36.57% 145.89% 15.23%
Deposits Growth 31.30% 20.09% 14.36%
Loans & Advances Growth 24.52% 29.75% 15.84%
Efficiency Ratios
Interest Expense/ Interest Income 74.16% 72.05% 67.93% 68.40%
Investment Income to Investment 30.76% 19.11% 23.06% 11.62%
Assets
Interest Yield 15.44% 14.13% 12.50% 14.04%
Profitability Indicators
Net Profit Margin 42.10% 51.94% 61.54% 51.23%
Gross Profit Margin 81.31% 81.29% 86.54% 78.56%
Source: Annual Financial Statement
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57. 4.2.7 KEY INFORMATION
OF NBFI INDUSTRY
Basic Ratio Yearly Growth 2011
Company Name Price to Price to Non Net Interest Total Net Income
Book Earnings Performing Income (%) Operating Growth (%)
Value Ratio Loan (%) Income
(%)
Bay Leasing & Investment 1.73 19.17 17.12 214.90 -68.41 -57.19
Limited )
Bangladesh Finance and 2.31 31.43 9.58 -70.03 -79.33 -95.95
Investment Co.Ltd
Bangladesh Industrial 2.22 -8.2 13.14 100.37 -36.31 -92.72
Fin. Co. Ltd.
Delta Brac Housing 3.71 16.04 0.14 16.52 22.04 63.35
Finance Corp. Ltd
FAS Finance & 1.91 -69.68 9.28 99.74 -14.62 -91.42
Investment Limited
First Lease Finance and 3.30 16.68 9.28 -4.21 0.08 -40.65
Investment Ltd
GSP Finance Company 2.57 26.34 14.19 -25.19 -53.62 -56.51
(Bangladesh) Limited
ICB 2.07 12.99 6.45 26.23 16.84
IDLC Finance Ltd 3.31 27.41 2.32 24.95 -29.11 -62.30
International Leasing & 2.34 57.73 9.27 -24.77 -67.19 -116.49
Financial Serv.L
Industrial Prom. & Dev. 1.22 -46.09 13.04 -26.27 -23.70 -36.62
Co. of BD Ltd
Islamic Finance & 2.64 23.45 32.21 -11.60 -77.71
Investment Ltd
LankaBangla Finance ltd 2.36 26.56 6.51 64.44 -36.27 -53.29
MIDAS Financing Ltd. 2.91 -16.88 5.58 52.41 7.48 -60.37
National Housing Fin. and 3.42 533.75 6.42 3.74 -14.71 -28.24
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58. Inv. Ltd.
Phoenix Finance and 2.77 17.58 3.80 -3.78 -44.63 15.60
Investments Ltd
Peoples Leasing and Fin. 0.35 18.39 11.47 30.28 -25.97 -49.07
Services Ltd
Premier Leasing & 0.49 36.17 6.24 70.91 0.16 -47.16
Finance Limited
Prime Finance & 0.52 46.06 6.48 -18.09 -45.43 -55.37
Investment Ltd
United Leasing 0.73 21.63 4.07 1.35 7.30 -43.60
Union Capital Limited 0.84 254.17 9.52 51.16 -51.60 -68.77
Uttara Finance 0.53 10.96 2.73 104.88 70.56 -4.10
Table #9: Industry Information
Source: Annual Financial Statement
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