Customer Satisfaction And General banking Activities of Social Islam Bank Limited
Chapter One
1. 1. 1: INTRODUCTION One of the renowned names in Bangladesh financial market is Industrial Development Leasing Company (IDLC) Limited. It started operation in the year 1985 as the pioneer leasing company as to facilitate lease- financing and capital investment in industrial sector, with the view of “Become the best performing and most innovative solutions provider in the country”. For introducing new multitude of diverse financial products and services in 2007 the company changed its name to IDLC Finance Ltd. Over the last two decades IDLC has contributed relentlessly in the country’s transition into a developing country and has emerged as Bangladesh’s leading multi product financial institution. The company now offers financial and technological solutions to both institutional and individual clients to cater for their unique requirement.
1. 1. 2: ORIGIN OF THE REPORT I hae been assigned to do my Internship program in the IDLC Finance Limited, Consumer Division, in Mirpur as a partial requirement of the B.B.A Program. It is a three credit course to complete the B.B.A program of the Department of Accounting & Information System. I prepared this report on direction of my supervisor Prof. Dr. Md.
Ashraf Ali Khan,
Department of Accounting, Shaikh Borhanuddin Post Graduate College, on “Over All Non Banking Financial Activities & Performance of IDLC Finance Ltd.”. This report has been prepared on the basis of information that I have known from the secondary information and the information I have collected during my internship from IDLC Finance Ltd.
1. 1. 3: OBJECTIVES OF THE REPORT The report purports to focus on two aspects: 1. The organization and 2. The project;
1.1. 4: Objective of the organization
The purpose of the organizational part is to demonstrate the experience of the twelve week internship program and analyze the activities, performances and also to demonstrate their strength, weakness, opportunities, threats and other business affairs of IDLC Finance Ltd.
1.1.5: Objective of the project This part of the report encompasses a brief rundown on the various functions and operations of the Consumer Division of IDLC. I was allowed to have a practical orientation in Credit and Collection Department of IDLC. Thus, all practical information used in this is more or less collected through the day to day orientation.
1. 2. 1: SCOPE The report will attempt to present IDLC of Bangladesh Ltd. since its inception with a brief introduction of its sponsors. Apart from the internal practice and company philosophy, a brief introduction will be provided on the industry as a whole and the macro and micro economic variables shaping the industry. The researcher will try to identify corporate philosophy as well as customer opinion on what constitutes a better service. Lastly, an attempt will be made to find out various problems hindering the growth of the NBFI. The researcher will attempt to present an overview of Consumer Divisions different operations. After analyzing analogous situation in other areas a steps will be suggested to overcome the barriers to progress.
1. 2. 2: METHODOLOGY The paper will be written on the basis of information collected from primary and secondary sources. The primary information has been collected from the Institution and as well as some general clients of the Non Banking Financial Institution. The secondary information has been collected from the company’s annual report, corporate newsletter, branches manuals, and intranet of the company, different websites and various publications of the institution. Some opinions and ideas have been incorporated in the paper through interactive sessions, interviews and informal discussion with the company officials. The officials interviewed included the HOCCD (Head of Credit and Control Division), Head of Liability Operations, different managers, executives and high officials.
1. 2. 3: LIMITATIONS During my orientation I am able to learn a lot of things but still it was not enough. There are some limitations that I can’t ignore. The main limitations were:
The time span was not sufficient enough to learn all the activities of the organization properly. Therefore, it was very difficult to carry out the whole analysis.
2
Data unavailability was the constraint. Official documents on the detail activities of the department were not available.
For business secrecy confidential information, which could have enriched this report could not be given.
I was There Placed For Three month But In Working days I had to spend all days for organizing there customer undertaking so I couldn’t get enough time for collecting data for my internship report.
The organization is very conservative about there information, collecting primary data was very heard for me. So I have to prepare most of the part of my report based on secondary report.
Chapter Two
2.1.1 THE PIONEER IDLC Finance Ltd commenced its journey, in 1985, as the first ever leasing company of the country with multinational collaboration and the lead sponsorship of the International Finance Corporation (IFC) of The World Bank Group. Technical assistance was provided by Korea Development Leasing Corporation (KDLC), the largest leasing company of the Republic of South Korea. IDLC, which has now emerged as Bangladesh’s leading multi-product financial institution, has amongst its external share-holders, international development agencies such as the Aga Khan Fund for Economic Development (AKFED) and German Investment and Development Company (DEG) besides the IFC. The other foreign sponsors include Kookmin Bank of the Republic of Korea in addition to KDLC and, all these institutions together hold 45% of the Company's shares. Three Bangladeshi financial institutions - IPDC of Bangladesh Limited, The City Bank Limited, Sadharan Bima Corporation and the general public hold the remaining 55% of the shareholding in this public limited company listed with the Dhaka & Chittagong Stock Exchange. IDLC is on the list of the twenty (20) largest capitalized companies in the country. The unique institutional shareholding structure comprising mostly of financial institutions helps the company to constantly develop through sharing of experience and professional approach at the highest policy making level. IDLC, as a multi-product financial institution, offers a diverse array of financial services and solutions to institutional and individual clients to meet their diverse and unique requirements. The product offerings include Lease Finance, Term Finance, Real Estate Finance, Short Term
Finance, Corporate Finance, Syndicate Finance, Merchant Banking, Term Deposit Schemes, Debentures and Corporate Advisory Services. IDLC's vision is to be Bangladesh’s best multi-product financial institution. In achieving this vision
and
goal,
we
realize the
importance
of
taking
due
care
of
all
of
our constituents, particularly the share-holders, customers and workforce. The corporate philosophy is to perform with proper accountability and achieve highest ethical standards in all our activities. IDLC’s unique institutional shareholding structure, compromising mostly of financial institutions, helps the company to constantly develop through sharing of experience and professional approach at the highest policy making level. IDLC has also established two wholly owned subsidiaries, IDLC Securities Limited and IDLC Investments Limited to provide customers with security brokerage solutions and IT solutions, respectively. Authorized Capital Paid-up Capital premium)
(including
2.1.2 :THE SPONSORS
4
2. 1. 3:CAPITAL STRUCTURE
share
BDT 10000000 SHARES (100 Each) BDT 6000000 SHARES (100 Each)
2.1.4: SHAREHOLDING STRUCTURE
1985 1986 1986 1990 1993 1994 1995 1995 1996 1997 1998 1999 2002 2004 2004 2005 2005 2005 2006 2006 2006 2007
Incorporation of the Company Commencement of Leasing Business Signing of First Lease Establishment of branch in the port city Chittagong Listing in Dhaka Stock Exchange Licensed by Bangladesh Bank for deposit taking Licensed as Non-Banking Financial Institution under the Financial Institutions Act, 1993 of Bangladesh Bank Licensed by Bangladesh Bank as off-shore financier in Export Processing Zones Listing in Chittagong Stock Exchange Commencement of House Finance and Short Term Finance operations Licensed as Merchant Banker by Securities and Exchange Commission Commencement of Corporate Financing and Merchant Banking operation Launching of Retail Deposit Products Opening of First Retail Focused Branch in Dhaka Launching of Cap Invest Introducing Securitization by securitizing BDT 190 million (US $ 3.01 million) Strategic Alliance with SBI Capital Markets Ltd. Introduction of Home Loan Shield – the first in the market Opening Merchant Banking Branch in the port city Chittagong Relocation of company’s Registered and Corporate Head Office at own premises Commencement of operation of IDLC Securities Limited, a wholly owned subsidiary of IDLC. Launching of Discretionary Portfolio Management Service “ Managed Cap Invest”
2007 2007 2007 2007 2007
Company name changed to IDLC Finance Limited IDLC Securities Limited Chittagong Branch Opened IDLC bags ICAB national award 2006 IDLC Receives first ICMAB National best corporate award 2007 IDLC Securities Limited Mohakhali Branch Opened
2008
IDLC Finance & Securities Sylhet Branch Opened
2.1. 5:
6
COMPANY CHRONICLE
2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2012 2012
IDLC finance Ltd. Sylhet branch opened Gazipur SME Booth is opened Imamganj SME Booth is opened Narayanganj Branch is opened Comilla Branch is opened Narshingdi Branch is opened Keraniganj Branch is opened Opening of Branch at mirpur Opening of Branch at Tongi IDLC Investent Ltd. Comences oprations Jessore Branch is opened IDLC Finance Ltd. Achieved “AAA” credit rating.
2.2.1: GUIDING PRINCIPLES
IDLC
is a multi-product financial institution offering an array of diverse financial services and solutions to institutional and individual clients to meet their diverse and unique requirements. Following are the guiding principles that shape the organizational practice of IDLC Customer first: IDLC has grown with its customers, who are believed to be the center of all actions. As the crux of IDLC’s corporate philosophy, customer service gets the highest priority. Innovation: IDLC has continuously introduced new financial products for meeting the needs of the entrepreneurs in a complex & challenging business environment. The concept of innovation is in-built into the working culture. Professional Knowledge: IDLC is staffed with qualified professionals and innovative minds in the country. Years of operational experience, large industrial database and competent workforce have gives them unparalleled advantages. Professional ethics: The professional at IDLC maintain the highest degree of financial and business ethics in all transactions with the clients. Over the last two decades, IDLC have put in bets efforts to meet the expectations of the clients and investors. One stop solution: Work at IDLC begins with the idea generation, then goes on into the feasibility study followed by arrangement of financing to implement the project. IDLC advises the clients, finance them and even arrange financing for them via different financing modes, namely: lease financing, term loan, bridge loan, syndication, bridge loan, syndication, ordinary shares, preferred shares and debentures.
2.2.2: Vision
Become the best performing and most innovative financial solutions provider in the country
2.2.3: Mission Create maximum possible values for all the stakeholders by adhering to the highest ethical standards For the Company: Relentless pursuit of customer satisfaction through delivery of top quality services. For the Shareholders: Maximize shareholders’ wealth through a sustained return on the investment. For the employees: Provide job satisfaction by making IDLC a center of excellence with opportunity of career development. For the society: Contribute to the well-being of the society, in general, by acting as a responsible corporate citizen. Goal: Long term maximization of Stakeholders’ value. Corporate Philosophy: Discharge the functions with proper accountability for all actions and results and bind to the highest ethical standards.
2.3.1 : ORGANIZATION STRUCTURE Chapter Three 3.1.1: PERFORMANCE OF IDLC AT A GLANCE IN 2011
8
Particulars
2007
2008
2009
3.1.2: IDLC PRODUCT AND SERVICES: 3.2.1: Loan Products •
Lease Finance;
•
Domestic Factoring of account receivables;
•
Real Estate Developer Finance;
2010
2011
Growth
•
Home Equity Finance;
•
Personal Lone;
•
Business Lone;
•
Term Finance;
•
Bill/ Invoice Discounting;
•
Corporate Real Estate Finance;
•
Home lone with home lone shield;
•
Car lone for individuals;
•
Machinery lone;
3.2.2: Investment Products •
Common equity products;
•
Bonds;
•
Preferred Equity investment;
3.2.3: Liability Products •
Term Deposit schemes ;
•
Debentures;
•
Securitized Bonds;
3.2.4: Corporate Services •
Project Finance Appraisal;
•
Working Capital arrangements;
•
Refinancing arrangements;
•
Securitization of Receivables;
•
Personal Supports to SMEs ;
3.2.5: Merchant Banking and Portfolio Management Services •
10
Cap Investment ;
•
IPO;
•
Underwriting;
•
Placement of Equity, Debentures, Bonds;
•
Maximum capital Investment;
•
Issue Management;
•
Investment advisory;
Chapter Four
4.1.1: NON PERFORMING LONE RATIO: 2007 2008 2009 2010 2011
Here we can see that non performing loan ratios are decreasing each year. And in 2011 it is 3.07 % which is a good sign for IDLC Finance ltd. The ratio of non performing loan has been further reduced from 4.5% in 2009 and 3.62 % in 2010 to 3.07% in 2011, mainly through strengthening of the credit and collections teams and relevant process. IDLC has continued with its prudential policy of building adequate provision for doubtful accounts and future losses.
4.1.2: MARKET CAPITALIZATION OF IDLC FINANCE LIMITED
2007 2008 2009 2010 2011
In this graph we can see their market capitalization is highest in 2011. Higher market capitalization means expansion of
business and as result IDLC opened their twelve new
branches in recent two years. The company had to relay mainly on profit retention to support enhanced capital requirements arising from asset growth, capital adequacy. The Bangladesh Bank adoption of Basel II accord for NBFI from January 01, 2012 is also likely to exert added pressure on companies capital adequacy.
4.1.3: BOOK VALUE: 2007 2008 2009 2010 2011
12
Market value added statement reflects the company’s performance evaluated by the market through the share price of the company. This statement shows the difference between the market value of the company and the capital contributed by investors. This statement shows how the MVA has been calculated for the year ended 31 December, 2011 and 2010.
4.1.4: DEBT TO EQUITY RATIO: 2007 2008 2009 2010 2011
IDLC finance limited is a strong equity based company. Emerging Credit Rating Agency of Bangladesh rated IDLC in long term rating at “AAA” and sort term rating as “ST -1”. Institution rating in this category characterized with excellent position. As in December 31, 2011 total equity of IDLC finance stands at BDT 3690 million and 2010 it was BDT 2393 million. This means the company has a strong equity against its debt. And the graph also show that the ratio of debt to equity ratio is decreasing in each year. And that is a good sign for the company to meet its obligation. The company’s equity had increased by 54% over the previous year.
4.2.1: EARNING PER SHARE: 2007 2008 2009 2010 2011
14
The company believes that superior service, diversification of client segment and business strong risk management, performance focus, ensuring sustaining financial performance and those results an increasing rate of earning per share. This graph shows every year this rate is increasing. Consorted earning per share grew by 61% to BDT 221.8 compared to previous year.
4.2.2: DIVIDEND PER SHARE: 2007 2008 2009 2010 2011
IDLC finance has been paying dividend consistently to its shareholders over the years. But they pay dividend randomly according to their business policy. This graph highlights their dividend payment per share. Moreover the company has paid 110% in 2010 and 100 % in 2011. The following tables shows the five years ratios, Particulars 2007
2008
2009
2010
2011
Growth
Dividend 38.33 per share (%)
40.00
35.00
110.00
100.00
-9.09%
Dividend yield (%) Dividend payout ratio (%)
4.89
2.63
1.53
2.97
2.15
-0.82
36.62
26.40
21.55
40.10
45.21
5.07
4.2.3: PRICE EARNING RATIO: 2007 2008 2009 2010 2011
16
Price earnings ratios are 21.01 that indicate a good sign for the company. We know that lower price earning ratio means earring per share is more than the market value of the company. In 2011 IDLC Finance has decreased by 6.02% against 2010.
4.2.4: Operating income 2007 2008 2009 2010 2011
Above graph shows in Each year their operating income growth increased rapidly. In 2011 operating revenue grew 58% to reach BDT 3027 million against the year 2011. Though the amount of BDT million increase in 2011 but the growth shows that there is negative growth in percentage in 2010 to2011, here the growth is 58% but the previous year growth is 62% which indicated that the operating expenses also increased. So the company should try to reduce their operating cost expenses.
4.3.1: Total asset 2007 2008 2009 2010 2011
IDLC consolidated asset at 2011 year end stood at BDT 26.9 billion a 19 % growth over 2010. An aggressive deposit program was initiated in the second half of 2011 and by year end. So from the above graph I can say they has a optimum level of asset. That means they have the ability to meet its long term as well as short term obligations with adequate asset.
4.3.2 Return on total assets 2007 2008 2009 2010 2011
18
The return on asset ratio of IDLC finance ltd also improved in 2011 over other four years. That we can see on this graph and the annual report of 2011. The ROA increased means the net income also increased and in 2011 their return on asset is 5.35 with a growth of 1.24%.
4.3.3: Profit 2007 2008 2009 2010 2011
In 2011 IDLC Financed Limited posted an operating profit of BDT 1956 million as against BDT 1273 million in 2010 with a spectacular growth of 53.65 percent over the preceding year. After having made necessary provisions for loans and advances, accordance with the instruction of Bangladesh bank net income before tax (NIBT) stood at BDT 1327million in
the year under review against TK 822 million in the preceding year registering a growth of 61.47 percent.
4.3.4: Shareholder’s equity
2007 2008 2009 2010 2011
This graph shows that shareholders equity in 2011 is BDT 3690 million with a growth of 54 percent against BDT 2393 in the 2010. This graph also shows the share holder’s equity was in a steady growth 2007 to 2008. And the growth rate 2008 to 2009 was reduced against 2007 to 2008. But from 2009 it is again with positive growth.
4.3.5: Return on shareholders’ equity 2007 2008 2009 2010 2011
20
Return on share holders’ equity rose to 43.64% with a growth of 2.59% and 2011 it is the largest percentage on five financial years. And it is undoubtedly good sign for the company. This positive growth means shareholders got their optimize return on their capital. This scenario also attracts other investors to invest in the company.
4.4.1 Current Ratio:
2007
2008
2009
2010
2011
The current ratio of IDLC finance in 2011 is 1.39:1 with a growth of .35 times. IDLC has a optimum current ratio over the last few years. It means the company has the ability to face its short term liabilities successfully with their short term asset. Chapter Five
5.1.1: Sector wise exposure June 2012:
22
5.1.2: Risk Management of IDLC Finance Limited: Risk is the element of uncertainty or possibility of loss that prevail in any business transaction in any place, in any mode and at any time. Risk is an integral part of financing business. Risk management entails the adoption of several measures to strengthen the ability of an organization to cope with the vagaries of the complex business environment in which it operates. IDLC always concentrates on delivering high value its stakeholders through appropriate tread off between risk and return. A well structured and proactive risk management system is in place within the company to address risk relating to credit, market, liquidity and operations. Risk grading is assigned at acceptation of lending considering the industry, business financial and management risk associated with financing. The company has different committees for risk management and appropriate internal control measures are also in place to mitigate risk. 5.1.3: Major Risks at IDLC: Major risks that IDLC identifies detrimental to its return and market reputation is as follows: Credit Risk: Credit risk is the possibility that a borrower or country party will fail to meet agreed obligations. Thus managing credit risk for efficient management of a financial institution (FI) has become the most crucial task. Given the fast changing, dynamic global economy and the
increasing pressure of globalization, liberalization, and consolidation it is essential that FIs have robust credit risk management policies and producers those are sensitive and responsive to these changes. At IDLC, credit risk may arise in the following forms: •
Default risk
•
Exposure risk
•
Recovery risk
•
Country party risk
•
Related party risk
•
Legal risk
•
Political risk
Market Risk: Market risk refers to the risk of fluctuation in a variety of markets such as interest rates, prices of securities where the values of assets and liabilities can change and there exists the risk of incurring losses. Liquidity Risk Liquidity risk arises when a company is unable to meet the short term obligation to its lenders and stakeholders. This arises from the adverse mismatch of maturities of assets and liabilities. Operational Risk Operational risk is the potential loss arising from a break down in company’s system and producers, internal control, compliance requirements or corporate governance practices that results in human error, fraud, failure, damage of reputations, delay to perform or compromise of the company’s interests by employees. Operational risk may also arise from the following: Turnover of trained stuff;
24
•
Risk of insider dealings;
•
Leakage of sensitive information;
•
Shortcomings of organizational structure;
•
Risk of falling in credit ratings;
•
Money laundering;
•
Changes in statutory requirements
•
Technological obsolescence;
•
Business Volume Risks
At IDLC, business volume risk may arise in the form of risk of falling business volumes and market share, risk of being overtaken and losing leadership position and risk of over trading which may affect profitably due to volatile revenues and reduced spread earnings, credit rating and reputation. Risk of over trading may lead to insufficient capital.
5.1.4: Implementation of various strategies to minimize Risk •
Looking the payment performance of customers before financing.
•
Annual review of clients.
•
Adequate insurance coverage for funded asset.
•
Vigorous monitoring of and follow up by special assets management team.
•
Strong follow up of compliance of credit policy by credit admin department.
•
Taking collateral and performing valuation and legal vetting on the proposed collateral.
•
Seeking legal opinion from internal external lawyer for any legal issues.
•
Maintaining neutrally in politics and following arms length approach in related party approach.
•
Regular review of market situation and industry exposure.
5.2.1: Industry Analysis Strategy analysis involves three types of analysis. These are: Industry analysis, competitive analysis and Corporate Strategy Analysis. The vast research reveals that the average profitability of an industry is influenced by the “Five Forces “which are as follows: 1. Rivalry among the existing firms. 2. Threats of new entrants. 3. Threats of substitute products 4. Bargaining power of buyers 5. Bargaining power of suppliers
6. 5.2.2: Five forces analysis of the Banking and non Banking financial industry (A) Intra industry rivalry: •
Number of competitors: In banking and non banking financial institution industry, the number of firms is high. So, the intra-industry rivalry is high.
•
Industry growth: The industry is growing fast in Bangladesh. From this point of view, intra-industry rivalry is low.
•
Concentration and Balance of Competitors: As there are other dominant firms except IDLC finance ltd. in this type of industry, it cannot set and enforce the rules of competition, it can only cooperate with other players to avoid destructive competition.
•
Degree of Differentiation and switching costs: For most of the category degree of differentiation and switching costs are low. Therefore, there exists price competition.
•
Fixed rate: In this industry, large percentage of cost is fixed. So, the intraindustry rivalry is high.
•
Exit barriers: Exit barrier is high in banking industry .So, the intra-industry rivalry is high.
By considering all the points, we found that the intra-industry rivalry in sector is high. (B) Threat of new entrants: •
Economies of scale: This industry has high economies of scale. So, the threat of new entrants is low.
•
First mover advantage: Banking industry has first mover advantage. So, early firms have absolute advantage over new firms. Thus, the threat of new entrant is low.
•
Legal Barriers: The threat of new entrants is low because of high legal restrictions.
•
Access to channels of distribution and relationships: Existing good relationships between companies and customers in Banking industry will make it difficult for new companies to enter in this industry.
Overall consideration shows that the average threat of new entrant in Banking industry is low. (C) Bargaining power of buyers:
26
•
Buying volume: For Some buyers who can invest in large volume have the bargaining power very high.
•
Product differentiation: Most of the products offered by different firms in the industry are virtually identical. So, here the bargaining power of buyer is high.
•
Production costs: As the buyers are aware of cost, the bargaining power of buyers is high.
By considering all the points, we found that the Bargaining power of buyers in banking and non banking financial institution industry is high. (D) Bargaining power of suppliers: •
Level of concentration: As the suppliers are highly concentrated, the bargaining power of suppliers of this industry is high.
•
Forward integrate: As the Suppliers can forward integrate, the bargaining power of suppliers is high.
•
Percentage of suppliers’ business: As the big depositors are low in number, the bargaining power of suppliers is high.
•
Product differentiation: Some of the products of suppliers are highly differentiated. So, in this case, the bargaining power of suppliers is high.
•
Switching among suppliers: In this industry, switching between suppliers is not easy and costly. Thus, the bargaining power of suppliers is high.
By considering all the points, we found that the Bargaining power of supplier in Banking industry is high. (E) Threat of substitutes: •
Whether industry-producing substitutes are profitable or not: In banking non banking financial institution industry, the substitute product can be profitable.
•
Price/performance relationship of substitute products: In Banking non banking financial institution industry, substitute product or service is improving in its price /performance relationship.
By considering all the points, we found that the threat of substitute in banking non banking financial institution industry is high. Chapter Six
6.1.1: Operational Performance of IDLC During 2011
The Company’s diversified operations and subsidiary saw a handsome growth during the year 2011. SMEs in Bangladesh have been making a significant contribution to the country’s economy. However, there is large gap between their needs and access to reasonably priced fund. Under this backdrop, they have taken an initiative to aggressively increase investment in this segment, in a structured manner to cater to the financing needs to small and medium sized business enterprise. IDLC’s SME focused branches have strengthened its financing activities in this growing sector of the country. As a part of business expansion, during 2011, they opened several branches across the country which, we believe, will contribute significantly to the management’s effort for increasing SME clients at that mobilization in that region to increase their business and provide better services to their SME clients at that region. They have also planned to set up more Branches in different locations of the country during the year 2011. They believe that setting up of these branches will help us to generate business volumes from SME markets which are mostly untapped by us, establish their permanent presence in different areas, give faster service delivery and cross selling opportunities of all their other financial products and services. Setting up of these branches, they believe, will also broaden their deposit mobilization effort. The mode of financing of SME Division of IDLC includes lease, term loans, short term financing through factoring, bill discounting, etc. During 2011 SME Division has disbursed BDT 2,712 million against BDT 1,820 million in 2010 showing a robust growth of 63%. As on December 31, 2011 the SME asset size of the Company stands at BDT 4,144 million compared to BDT 2,544 million at December 31, 2010. Company’s Corporate Finance Division which provides mainly lease and term loans to large corporate houses has disbursed BDT 1,633 million during 2011 compared to BDT 1,929 million during 2010. The year end asset of the division stands at BDT 4,638 million. As the corporate financing continued to face stiff competition from commercial banks as regard to the pricing, they are focusing more on other financing where return is comparatively better to increase the overall value for shareholders. The Personal Finance Division of the Company deals mainly with real estate finance and also provides personal and car loans to some very selective clients. During 2011, this division disbursed BDT 2,439 million compared to BDT 2,066 million in 2010. The total asset portfolio of the division at the year end stands at BDT 28
6,611.
6.1.2: Real Estate Finance Although the real estate and housing industry experienced a setback during 2011 with fall sales due to non-availability of electricity and gas connections as per government decision and hike in apartment price, IDLC’s housing finance operation witnessed a reasonable growth of 15%. The in disbursements.
6.1.3: Car Loans During the year under report, their company disbursed BDT 150 million against previous year’s disbursement of BDT 148 million. This operation has, however, earned revenue of BDT 56.09 million during the period. This business is facing enormous competition from commercial banks, which are able to offer lower rates and spend large amounts of money on aggressive marketing campaigns in conjunction with a large sales force and branch network. They provide car loans to very selective and mostly clients having other business relationship with them.
6.1.4: Merchant Banking Operation During 2011, IDLC’s merchant Banking Operation earned BDT 1,314 million in revenues, which is a hefty 61% higher than the previous year. The operation has earned an operating profit of BDT 616 million, compared to previous year’s BDT 190 million, marking a robust growth of 224%. At the end of December 2011, total portfolio value at cost was BDT 15,803 million (BDT 17,951 million at the market price) and balance of margin loan was BDT 5,633 million. During the year this operation has also successfully managed three issue management.
6.2.1: Treasury Their priorities are to reduce funding cost, diversify funding avenues, reliance on conventional their and manage balance sheet gaps in a way that enable IDLC to achieve significant progress.
6.2.2: Human Capital IDLC continued to implement appropriate human resource management policies and practices to develop its employees, and to ensure their optimum contribution towards the achievement of corporate goals. At IDLC, we believe that their Human Resource (HR) give
the organization a significant competitive edge in terms of knowledge and experience. Keeping this in mind, they continued their policy of recruiting the best people and implementing programs to develop and retain high quality human resource.
6.2.3: Contribution to National Economy IDLC Finance Limited commended its journey in 1985 as the first leasing Company in the country. With its pioneering role, IDLC has made the lease financing popular in the country and developed the leasing industry, which has total investment more than BDT 250 billion now, as a vibrant financial intermediary in the medium term financing segment in the country. IDLC is continuously increasing its focus on financing to small and medium enterprises (SME’s) the engine for growth for any developing economy. During the year under report, the Company has deposited BDT 575 million to the Government Exchequer as corporate income tax, withholding tax and VAT. Chapter Seven
7. 1.1: Conclusion The importance of sustaining and improving performance is increasing day by day particularly in an environment which is characterized by rapidly flourishing technology and its growing application to banking and non banking financial institution tremendous competition, product development, shift in marketing strategy, deregulation & globalization on the one hand, and escalation in the number of bank failures accompanied by mergers and mega mergers on the contrary. In order to keep abreast with the prevailing market scenario it is necessary to develop a comprehensive performance evaluation system. Performance Evaluation System means a mechanism for improving the likelihood of the organization successfully implementing its strategy. It is a process to have the goal of strategy implementation. In this process senior management selects a series of measures that best represent the organization’s strategy. The current report aimed at critically examining the Performance of a private financial institution. The main objective of this report was to evaluate the financial analysis of IDLC finance ltd. along with how efficiently are providing services to its customer. From Financial Analysis it has been seen that the performance of IDLC finance ltd is really satisfactory.
7.1.2: Findings: 30
After covering the overall non banking activities and Performance of IDLC Finance Ltd. I have got several findings. These are given bellow : 1. IDLC Finance Ltd. The largest & oldest non banking financial institution or leasing company in the country. 2. Now it is the multiproduct financial institution. 3. It has good profitability, better liquidity, strong corporate governance, ability to increase asset base in a regular basis. 4. Astute, prompt and experienced management team in the backbone of the institution. 5. Robust asset liability policies have enabled the institution to adequately meet the regularity requirements with surplus in CAR, CRR & SLR. 6. Healthy asset quality with low & decreasing NPL. 7. Strong risk management policies. 8. Well organized product diversification with diversified loan portfolio & a diverse set of clientele- comprising the prominent corporate, Retail, SME. Capital Markets of Bangladesh. 9. Achieved the highest Safety & security credit rating “AAA”. 10. A solid deposit base & growing customer deposit base with good retention rate. Also I have found some increasing & decreasing financial indicators that express the strengths & growth of a financial position those are given bellow: Increases—Market capitalization, Market Value, Earning per share, Operating Income, Total asset & Return on Total asset, Net Profit & Share Holder’s Equity. Decreases--NPL, Debt Equity Ratio, Dividend Per Share Price Earning Ratio.
7.1.3: Recommendation: The management of IDLC finance ltd should review their systems, policies, processes and product prices in line with the changing market reality. The institution should explore of high
quality products and services to attract its potential market and diversity of products is important. More training should be conducted for the employee to improve their analytical ability and professional standard regarding the use of tools and techniques in selecting the borrowers and analyzing the loan proposals. Authority should be delegated to the lower level with adequate measures for the necessary control and follow-up for making the lending decision and recovery. One proper standard procedure should be developed for all types of clients and no interpersonal relationship should be involved in approving a loan. Interest income occupies the major part of the total earnings of a financial institution and the profitability mainly depends on interest earning capacity, so they should establish a research and development cell for the purpose of lending analysis and recovery of loans. In reducing magnitude of classified loans, the system of credit appraisal needs to be strengthened through developing comprehensive borrower rating system.
7.1.4: Caricature IDLC- Industrial Development & Leasing Company. Ltd. –Limited CRM – Credit Risk Management SME - Small & Medium Enterprise NBFI – Non Banking Financial Institution IPO – Initial Public Offer NIBT- Net Income before Tax VAT Value Added Tax NPL – Non Performing Loan CRR – Cash Reserve Ratio SLR –Statutory Liquidity 32
References: • •
Annual report of IDLC Finance Ltd. (2007-11) Scheduled Bank Statistics-April – June, 2004 Published by Statistics Department,
Bangladesh Bank. •
Web site of Bangladesh Bank (www.bangladesh-bank.org)
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Website of Dhaka Stock Exchange (www.dsebd.org)
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Web
site
of
IDLC
Finance
ltd.
(www.idlc.com)
www.investopedia.com/terms/c/camelrating.asp •
Memorandum & Articles of Association of IDLC finance Ltd.