Report on

Financial Performance and Evaluation of IDLC Finance Limited

Report on
Financial Performance and Evaluation of IDLC Finance Limited

Course Name: Financial Markets and Institutions Course Code: FIN-418

Submitted To Idris Ali Course Instructor Department of BBA MIU Submitted By

Name 1.Sharif Hasan Mahmud 2.Raju Ahmed 3.Tazuddin Yealduj 4.Samsul Arefin

ID 0924BBA01167 0924BBA01166 0924BBA01148 0924BBA01163

LETTER OF TRANSMITTAL July 28, 2012 Idris Ali Course Instructor Department of BBA MIU Subject: Submission of Report of BBA Programme Dear Sir, It is our great pleasure to submit the report on Financial Performance and Evaluation of IDLC Finance Limited which is a part of BBA Programme to you for your consideration. We have given our best effort to prepare the report with relevant information. Within the time limit, we have tried our best to compile the pertinent information as comprehensively as possible and if you need any further information, we will be glad to assist you. Thanking you, Your most obedient pupils 1.Sharif Hasan Mahmud 2.Raju Ahmed 3.Tazuddin Yealduj 4.Samsul Arefin ID-0924BBA01167 ID-0924BBA01166 ID-0924BBA01148 ID-0924BBA01163

Manarat International University

EXECUTIVE SUMMARY

This report is prepared as a partial fulfillment for the Course of Financial Markets and Institutions. The report contains four chapters. The first chapter is Introduction. The second chapter includes overview of the company .The third chapter is financial performance analysis and last chapter is consists of findings,recommendation,conclusion. In our first chapter we have explained about our given topic. Here, We have discussed about Introduction and Methodology.In my second chapter we have tried to give clear idea about the company. The third chapter includes annual report,analysis and CAMEL Ratings.

Table of Contents
Letter of Transmittal Executive Summary

Chapter One
1.0 Introduction
1.1 Introduction 1.2 Methodology

Chapter Two
2.0 Overview of The Company
2.1 IDLC Finance limited 2.2 Shareholding Structure 2.3 Company chronicle 2.4 Guidance principle 2.5 Organogram 2.6 Divisions & Department

Chapter Three
3.0 Financial Performance Analysis
3.1 Annual report 3.2 Performance indicators 3.3 Economic Value Added (EVA)Statement 3.4 SWOT ANALYSIS 3.5 CAMEL Rating

Chapter Four
4.1 Recommendation 4.2Conclusion Reference

1.1 INTRODUCTION:
The development of financial market has been receiving heightened attention from the policy-makers in recent years. One explanation lies in the fundamental shift of development strategy reflected in the nearly universal embrace of the private sector as an engine of economic growth. The governments in both developed and developing countries, the international financial institutions which exert tremendous influence on the policy-making apparatus of developing countries and, to a great extent, the intelligentsia have all joined together as ardent advocates of private entrepreneurship. IDLC Finance Ltd, a leading financial institution of the country achieved significant growth in all areas of business. IDLC began its operation in 1985 as the first leasing company in Bangladesh. In 1995, IDLC was licensed as a Financial Institution by the country's central bank and during the last two decades, the company has grown in tandem with the country's growing economy. The company's wide array of products and services range from retail products, such as home and car loans, corporate and SME products including lease and term loans, structured finance services ranging from syndications to capital restructuring and capital market services. The company also strengthened its presence in the country's growing stock market with launching a subsidiary-IDLC Securities Limited-which is offering fullfledged brokerage service for retail and institutional clients

1.2 METHODOLOGY OF THE STUDY :

Analysis has been made on the basis of the objectives mentioned before in the context of " Financial Performance and Evaluation of IDLC Finance Limited The report is made on the basis of information collected from secondary sources.

For the completion of the present study, secondary data has been collected. The main sources of secondary data are:

2.1 ILDC FINANCE LIMITED

IDLC Finance Ltd commenced its journey, in 1985, as the first 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 Korean Development Leasing Corporation (KDLC), the largest leasing company of the Republic of South Korea. 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 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, Merchant Banking, Term Deposit Schemes, Debentures and Corporate Advisory Services. The company has authorized capital of Taka 1,000,000,000 (10,000,000 shares of Taka 100 each) and paid up capital of Taka 250,000,000 (2,500,000 ordinary shares of Taka 100 each). IDLC has also established two wholly owned subsidiaries, IDLC Securities Limited and I, Cons Limited to provide customers with security brokerage solutions and IT solutions, respectively.

2.2 Shareholding Composition of IDLC Finance Limited:

Name Of Shareholders As on December 31, 2011 No.Of Shares %

1. SPONSORS/DIRECTORS The City Bank Limited Transcom Group Sadharan Bima Corporation Mercantile Bank Limited Reliance Insurance Company Limited Sub-total 2. GENERAL Institutions Bangladesh Fund Eastern Bank Limited Investment Corporation of Bangladesh Marina Apparels Limited Other Institutions Sub-total Individuals 3,150,310 2,163,400 1,278,380 990,000 6,908,230 14,490,320 3.18 2.19 1.29 1.00 6.98 14.64 28,082,830 13,199,930 7,542,810 7,425,000 6,930,000 63,180,570 28.37 13.33 7.62 7.50 7.00 63.82

General Public(Individuals) Sub-total Total Holdings

21,329,110 21,329,110 99,000,000

21.54 21.54 100.00

2.3 COMPANY CHRONICLE:

May 23, 1985 February 22, 1986 October 1, 1990 porcity Incorporati on of the Company Commencement of leasing business Establishment of branch in Chitt agong, the main

March 20, 1993 Listed with the Dhaka Stock Exchange Limited February 7, 1995 Licensed as Non-Banking Financial Insti tuti on under the Financial Insti tuti ons Act, 1993 November 25, 1996 Listed with the Chitt agong Stock Exchange Limited

May 27, 1997 Commencement of Home Finance and Short Term Finance operati ons January 22, 1998 Licensed as a Merchant Banker by the Securiti es and Exchange Commission January 15, 1999 Commencement of Corporate Finance and Merchant Banking operati ons January 29, 2004 Opening of the fi rst retail focused branch at Dhanmondi June 29, 2004 Opening of Gulshan Branch November 22, 2004 Launching of Investment Management Services "Cap Invest" January 2, 2006 Opening of fi rst SME focused branch at Bogra April 6, 2006 Opening of Branch at Utt ara July 1, 2006 Relocati on of Company's Registered and Corporate Head Offi ce at own premises at 57Gulshan Avenue September 18, 2006 Commencement of operati on of IDLC Securiti es Ltd., a wholly owned subsidiary of IDLC March 14, 2007 Launching of Discreti onary Portf olio Management Services "Managed Cap Invest" August 5, 2007 Company name changed to IDLC Finance Limited from Industrial Development LeasingCompany of Bangladesh Limited January 6, 2009 Opening of Sylhet branch August 26, 2009 Opening of Gazipur SME Booth February 3, 2010 IDLC started its operati on at Narayanganj February 24, 2010 Inaugurati on of Savar Branch

August 8, 2010 IDLC opened its 2nd branch in Chitt agong at Nandankanon October 27, 2010 IDLC stepped in Comilla December 23, 2010 IDLC inaugurated its Narsingdi Branch December 27, 2010 Opening of Keranigonj Branch June 15, 2011 IDLC started its operati on at Mirpur August 9, 2011 Inaugurati on of Tongi Branch August 16, 2011 Commencement of operati on of IDLC Investments Ltd., a wholly owned subsidiary of IDLC January 18, 2012 Opening of Jessore Branch

2.4 Board of Directors:

Chairman Anwarul Huq Chairman & CEO, Tyser Risk Management (Bangladesh) Limited - Nominated by Reliance Insurance Limited Directors Rubel Aziz, Chairman, The City Bank Limited - Nominated by The City Bank Limited Md. Habibur Rahman Mollah, FCA COO, Bangladesh Lamps Limited and Bangladesh Electrical Industries Limited - Nominated by Transcom Group Aziz Al Kaiser

Director, The City Bank Limited - Nominated by The City Bank Limited Hossain Mehmood Director, The City Bank Limited - Nominated by The City Bank Limited Meherun Haque Vice Chairperson, The City Bank Limited - Nominated by The City Bank Limited K. Mahmood Satt ar Managing Director & CEO, The City Bank Limited - Nominated by The City Bank Limited Md. Rezaul Karim Managing Director, Sadharan Bima Corporati on - Nominated by Sadharan Bima Corporati on A.K.M. Shahidul Haque Managing Director & CEO, Mercanti le Bank Limited - Nominated by Mercanti le Bank Limited Farooq Sobhan President & CEO, Bangladesh Enterprise Insti tute - Independent Director CEO & Managing Director Selim R. F. Hussain Company Secretary H. M. Ziaul Hoque Khan

2.5 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 IDLCs 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. Vision: Become the best performing and most innovative financial solutions provider in the country Mission: Create maximum possible value of 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.

2.6 ORGANOGRAM:
THE APEX OF THE ORGANIZATION IS THE BOARD OF DIRECTORS, WITH THE MANAGEMENT COMMITTEE AND MANAGING DIRECTOR IN THE FOLLOWING TIERS. THE BOARD CONSISTS OF THE FOLLOWING DIRECTORS:

2.7 DIVISIONS AND DEPARTMENTS:

The organization includes divisions which mainly deal with the products and services and departments which support in the operating activities. The divisions are the

The departments include

3.1 Key OperatingandFinancialHighlights:

Particulars 2007 2008 2009 2010 2011 Growth(%)

Financial Performance
Lease and Term loans disbursed Housing finance disbursement Short term finance portfolio Lease Finance Real estate finance assets Total assets Long term liabilities Term deposit balance Net current assets Operati onal Performance Operati onal income Operati onal expenses Financial expenses Profit before tax Net profit after tax Average ef ecti ve tax rate Financial Rati os Debt equity ratio (Times) Financial expenses coverage ratio Current ratio (Times) Return on total assets (%) Non performing loan ratio (%) Return on shareholders equity (%) 883 272 1,246 475 303 36.08 1,179 352 1,553 708 406 42.57 1,913 490 1,687 1,273 822 35.46 3,047 966 1,822 1,956 1,327 32.16 2,160 913 2,364 1,217 500 58.88 -29.11% -5.43% 29.76% -37.81% -62.30% 83.08% 2,977 1,255 213 4,571 3,065 15,056 11,103 8,257 1,401 3,412 1,612 336 4,734 3,915 17,342 12,115 8,249 1,559 3,750 1,839 317 4,383 4,789 22,681 18,792 9,780 3,645 4,345 2,121 468 4,107 5,605 26,930 21,745 12,373 4,172 8,517 2,586 821 4,547 6,979 31,165 25,299 16,828 3,676 96.03% 21.90% 75.61% 10.72% 24.52% 15.72% 16.34% 36.01% - 11.88%

9.54 1.38 1.20:1 2.37 5.96 27.59

8.32 1.46 1.21:1 2.50 3.97 28.43

8.48 1.75 1.04:1 4.11 3.43 41.05

6.30 2.07 1.39:1 5.35 2.84 43.64

6.83 1.51 1.31:1 1.72 2.32 13.04

8.44% -26.96% -0.08% -3.63% -0.52% -30.60%

Earnings per share* (BDT) Dividend per share Price earnings ratio (Times) Dividend yield (%) Dividend payout rati o (%) Equity Statisti cs Number of shares (No.) 2,000,00

3.06 4.00 49.63 2.63 26.40

4.10 3.50 55.76 1.53 21.55

8.30 11.00 44.60 2.97 40.14

13.41 10.00 34.67 2.15 45.21

5.05 2.50 27.41 1.81 49.47

-62.30% -75.00% -20.96% -0.34% 4.26%

2,500,000 3,000,000

6,000,000

99,000,000** 1550.00% -97.02% 7.87% -50.83% -77.01% 7.87%

Year end market price per share (BDT) 1,519.00 2,289.00 3,703.00 Net asset value per share (BDT) Market capitalization Market value addition Shareholders equity 12.60 3,038 139.30 1,247 16.28 5,723 212.62 1,611 24.17 11,109 346.13 2,393

4,648.00 138.50*** 37.27 27,888 427.53 3,690 40.21 13,712 98.29 3,980

* Prior years number of shares have been adjusted to refl ect bonus share issued in 2010. **As per Securiti es and Exchange Commissions Order No SEC/CMRRCD/2009193/109, dated September 15,2011, denominati on of face value of shares of IDLC has been converted to BDT 10 from BDT 100 per share. ***Market value of share having face value of BDT 10 per share.

3.2Performance Indicators:

Total asset
BDT In million
3,690 3,980

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2007 2008 2009 1,247 1,611 2,393

2010

2011

Total asset
In percentage

40% 30% 20% 10% 0% 2008 15%

31% 19% 16%

2009

2010

2011

Shareholders equity
BDT In million

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2007 2008 2009 1,611 1,247 2,393

3,690

3,980

Series1

2010

2011

Return of Shareholder equity

In percentage
43.64

45 40 35 30 25 20 15 10 5 0 2007 2008 27.59 28.43

41.05

13.04

2009

2010

2011

Return on total assets

In percentage

6 5 4 3 2 1 0 2007 2008 2009 2.37 2.5 4.11

5.35

1.72

2010

2011

Earnings per share

BDT
13.41

14 12 10 8 6 4 2 0 2007 2008 2009 3.06 4.1 8.3

5.05

2010

2011

Dividend per share

BDT
11 10

12 10 8 6 4 2 0 2007 2008 4 3.5

2.5

2009

2010

2011

Market capitalization
BDT In million

30,000 25,000 20,000 15,000 10,000 5,000 0 2007 2008 2009 3,038 5,723

27,888

13,712 11,109

Series1

2010

2011

3.3Economic Value Added (EVA)Statement:

Economic Value-Added is the surplus generated by an entity after meeting an equitable charge towards providersof capital. It is the post-tax return on capital employed (adjusted for the tax shield on debt) less the cost of capital employed. Companies which earn higher returns than cost of capital create value, and companies which earn lower returns than cost of capital are deemed harmful for shareholder value. The aim of EVA is to provide management with a measure of their success in increasing shareholders wealth: a better measure than profit of how much the company had made for shareholders. EVA has been calculated by the following formula: EVA = Net Operati ng Profi t Taxes Cost of Capital

in BDT 2011 2 Particulars Ppk2011 2010P

Amount

2010
1,370,469,404 (572,153,206) 798,316,198

2011
1,393,659,476 (588,087,495) 805,571,981

Net operating profit Provision for taxes Net operating profit after tax (NOPAT) Charges for capital Capital employed Cost of equity (%) Capital charge Economic Value added Capital employed as on December 31

3,845,264,733 12.33% 474,121,142 324,195,056

3,413,651,510 10.07% 343,754,707 461,817,274

Shareholders' equity 3,220,515,574 2,626,286,595 Accumulated provision for doubtful accounts and future losses 918,907,258 924,820,039 Average shareholders' equity 3,845,264,733 3,413,651,510

3.4 SWOT ANALYSIS :

The SWOT analysis for IDLC can be described as follows: Strengths 1. Reputation and brand image: IDLC is well-reputed company and has developed a brand image that is recognized by the customers. IDLC is an international joint-venture company and its shareholders have long records of sustainability and reliability in their respective fields. IDLC is one of the esteemed names in financial market of Bangladesh. Since 1985, IDLC has marked its journey through introduction of various innovative products and thus meeting the needs of large corporate clients. 2. 2 .Product portfolio: IDLC has diverse product portfolio for customers which made them second to none in Non-Banking Financial Industry. 3. 3. Quality Customer Portfolio: IDLC has a Credit Risk Management department of Multinational standard which enables the company to maintain a quality customer portfolio. 4. 4. Human Resources: The Company has competent management team. The over all work force of the company is considered as key resources for the organization. IDLC personnel are motivated, competent, energetic and creative. The company provides utmost support in terms of both technical and moral. 5. 5. Operational efficiency: IDLC provides customized solution to their customers to adjust their need. The company processes the loan applications quickly and smoothly. The sanction and disbursement of the loans are hasslefree.

Weaknesses 1. High Cost of fund: IDLC as any other NBFIs have high cost of fund in comparison to banks. As NBFIs can take deposit for less than one year from any individuals as banks can do, the deposit base of IDLC is not strong enough to reduce the average cost of fund.

2. More Focus on Volume: Although IDLC has department called Credit Risk Management to monitor the asset quality of the company, still the company sometimes for the sake of profit and past relationship provide loans to customers who at the end hamper the portfolio quality of IDLC. 3. Too Much Diversification: Too much diversification of product and services offering hamper the focus on the core services of the organization. 4. Less People in Liability Marketing: IDLC still employs lesser number of workforces for the aggressive liability marketing in comparison to banks and NBFI like DBH.

Opportunities 1. Continuity of Liberalization: Government has continued to liberalize the economy towards more market orientation. This encouraged both local and foreign investors to invest in potential sectors. The privatization plan of government is likely to have positive impact on industrialization. 2. Foreign Investment in Prospective Sectors: In recent days foreign investment in the various prospective sectors has increased phenomenally. This creates a good opportunity for all financial institutions to enter in the booming new sector. 3. Local banks inefficiency: One of the major reasons for thriving of leasing company in Bangladesh is local banks inefficiency of providing project loan. This phenomenon still persists. Threats 1.Threat from banks: In recent times banks are also entering into leasing business which is generally considered as functions of Non-Banking Financial Institutions. 2. Regularity control of government: The legal framework of Bangladesh is relatively weak. Lack of effective foreclosure laws and manual land recording system creates possibility of forgery and disputes. This may hinder the loan recovery from the defaulter

3.5CAMEL RATING:
Rating type 1.Capital sufficiency C Base At 31.12.08 Rating 1(Strong)

Reserve should 16.113 Crore be 25.00 crore by the end of 30.06.06 (Classified loan/lease and other assets)/overdue amount*100 6089.04/153384. 93*100=3.97%

2.Asset Quality A

2(Satisfactory)

3.Management M

Average of (1+2+1+1)/4=1.2 1(Strong) C,A,E & L ratios 5

4.Earning Ratio (NPAT/TA)*100 (4063.72/167085 1(Strong) % .65)*100%=2.43 E (NPAT/TE)*100 % % (4063.72/16113. 12)*100%=25.22 % 5.Liquidity Ratio L 1.CRR & SLR reserve 2.Interbank dependency 3.Profit Sum of 5 Ratios/5 -Reserved -Less dependent Strong 1(Strong)

CAMEL

(1+2+1+1+1)/5= 1.20

1(Strong)

CAMEL rating has improved to 1 comparing to the last year 2(Satisfactory)

4.1RECOMMENDATION:
As a pioneer and leading NBFI in Bangladesh IDLC Finance Ltd have been maintaining its quality in a smooth way. Their experience in the field of lease and other loan product make them very much cautious about the risk. A very skillful and technically enriched department always working in their full capacity to analyze the risk of the their product and services, So far they proof them as a successful organization in assessing risk and thus take care off it. Undoubtedly IDLC Finance Ltd is the best in NBFI sector therefore findings are general and recommendation is not that much necessary for the organization in the overall Credit Risk Management Procedure. Still the following can be mentioned, More detail information shall be tried to find out so that assessment can be made more accurately. As market is very much flexible so special concentration should be given in assessing the individual industry risk. In case of individual client assessment should be made in more details. There shall be an extra caution in making provisions against all defaults so that unwanted risk can be absorbed more easily.

4.2CONCLUSION :
To conclude the report, it is imperative to mention that default clients have been a major problem for the Non Banking Financial Institutions for long and the financial institutions have been trying to minimize the default problem all along. The central bank of Bangladesh has been striving to assist the financial institutions to get out of the default problem and formulating policies for that purpose. As a continuance to this, Bangladesh Bank has been providing directives when and where it seems to be necessary. In Bangladesh many business organizations are still facing problems in the functioning of smooth business operations and moreover they concentrate on making profit more than their safety as a result of this they sometime get out of safety caution to absorb the industry sock. Therefore fall in to loss and sometimes get liquidated. The consequence of this is that NBFIs do not get their due amount in time which is a big and foremost risk to the organizations. To overcome this, a very important factor to which risk weights have to be raised is the past default behavior of the borrowers. From interviews with the higher management of IDLC, who are much knowledgeable in this area have opined that one the most important factors that can be used to predict the future payment performance of the borrower is his character regarding repayment of his borrowed fund. Another critical matter is that the financial statements of the business organization in fact contain manipulated data. So the analysis of such statements leads to wrong and faulty conclusion. This problem can be solved by judging the financial statement by individual amount specially which will provide information for the beneficiary of the NBFIs. Also, law enforcement needs to be stronger and faster so that the willful defaulters can be punished for their defaults promptly. This will also cause the genuine business people to be more cautious when availing finance from financial institutions. The CIB database is a good start in this respect and has served to improve the overall loan repayment situation by the borrower. In the end, it can be remarked that the central financial authority as well as all the financial institutions have to continuously analyze the overall environment, economic, social, business, cultural and so on. Depending on this, they have to improve their risk evaluating procedure.

Reference __________________________________
Annual report, 2007,2008,2009,2010,2011- IDLC Finance Limited.