Review of Non-Bank Financial Sector 2010

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2 Advisor & Editor Dr. Toufic Ahmad Choudhury Report Preparation Team Team Leader Dr. Prashanta Kumar Banerjee Members Abdul Jalil Choudhury Ashraf Al Mamun Md. Alamgir Md. Mosharref Hossain A.N.K. Mizan Tahmina Rahman Editorial Associates Dr. Bandana Saha Abed Ali Bangladesh Institute of Bank Management Plot # 4, Main Road # 1(South), Section # 2, Mirpur, Dhaka-1216 PABX: , , Fax: bibmresearch@bibm.org.bd, Web:

3 Acknowledgement The report on "" has been completed with enormous and sustained support from many quarters. We would like to particularly thank the honorable Director General of BIBM, Dr. Toufic Ahmad Choudhury for his valuable advice, observations and innovative ideas to improve our work throughout the year. We are really appreciative and very grateful to all of our faculty colleagues for their valuable remarks and positive suggestions which helped us in finishing the report. Bangladesh Bank and different financial institutions extended their unstinted support in matters of data collection. We express our gratitude for their contribution. Our sincere appreciation goes to the Research Officer of BIBM, Ms. Papon Tabassum and Research Assistants, Mr. Md. Faysal Alam and Mr. Mia Sakib Anam for helping us in obtaining and processing a wide range of information. We hope this report would serve as a valuable resource for the financial institutions and concerned persons working in the financial sector. Dr. Prashanta Kumar Banerjee Abdul Jalil Choudhury Ashraf Al Mamun Md. Alamgir Md. Mosharref Hossain A.N.K. Mizan Tahmina Rahman III

4 Message from the Director General Bangladesh Institute of Bank Management (BIBM) presents, in all humility, this first issue of the 'Review of Non-Bank Financial Sector' - a new publication, which basically seeks to assess the strengths and weaknesses of the non-bank financial institutions of Bangladesh through comparative performance evaluation. In the financial market of Bangladesh, both banks and non-bank financial institutions are working in an intense competitive environment where they need to locate their market niche so that they can craft and put into use appropriate financial and marketing strategy. We hope all stakeholders of the financial sector particularly non-bank financial institutions would be benefited by the analysis contained in the Non-bank Review. We, at the BIBM, envision the Review to be our flagship publication and would welcome comments and suggestions from potential users to improve upon our presentation. (Dr. Toufic Ahmad Choudhury) Director General V

5 Contents Part-1 Part-2 Part-3 Part-4 Part-5 Part-6 Introduction 1. Introduction 2. Structure of the Report 3. Data and Methodology Performance of NBFIs Compared to BFIs Comparative Performance Evaluation Based on Establishment Year of NBFIs 1. Liquidity 2. Capital Management 3. Fund Utilization 4. Asset Quality 5. Earning 6. Operational Efficiency 7. Concluding Remarks Comparative Performance Evaluation Based on Listing Status of NBFIs 1. Liquidity 2. Capital Management 3. Fund Utilization 4. Asset Quality 5. Earning 6. Operational Efficiency 7. Concluding Remarks Comparative Performance Evaluation Based on Ownership Patterns of NBFIs 1. Liquidity 2. Capital Management 3. Fund Utilization 4. Asset Quality 5. Earning 6. Operational Efficiency 7. Concluding Remarks Pictorial Views of All Tables Pages References 70 VII

6 Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11 Table 12 Table 13 Table 14 Table 15 Table 16 List of Tables Part 2: Performance of Non Bank Financial Institutions NBFIs and BFIs: Paid-up Capital & Reserve, Loan & Advance, Deposit, Borrowings and Profit Sector wise Allocation Correlation Matrix of NBFIs Correlation Matrix of BFIs Part 3: Comparative Performance Evaluation Based on Establishment Year of NBFIs Liquidity: Regulatory - Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) Liquidity: Non-regulatory - Current Ratio (CR), Liquid Asset to Total Asset (LA to TA) Capital Management: Paid-up Capital to Required Capital (PC to RC), Total Capital to Total Asset (TC to TA) and Debt to Equity (DE) Ratio Funds Utilization: Total Loan & Lease to Total Deposit (TL&LS to TD), Total Loan & Lease to Total Borrowings (TL&LS to TB) and Total Loan & Lease to Total Deposit & Borrowings (TL&LS to TD&B) Asset Quality: Total Loan & Lease to Total Asset (TL&LS to TA), Total Investment to Total Asset (TI to TA) and Classified Loan & Lease to Total Asset (CL&LS to TA) Earning: ROA 1 - Operating Profit to Total Asset (OP to TA), ROA 2 - Net Income Before Tax to Total Asset (NIBT to TA) and ROA 3 - Net Income After Tax to Total Asset (NIAT to TA) Earning: Return on Equity - Net Income After Tax to Total Equity (NIAT to TE) Earning: Interest Income to Net Operating Income (II to NOI) Operational Efficiency: Operating Expense to Net Operating Income (OE to NOI), Staff Expense to Net Operating Income (SE to NOI), Staff Expense to Total Operating Income (SE to TOI) Part 4: Comparative Performance Evaluation Based on Listing Status of NBFIs Liquidity: Regulatory - Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) and Non-regulatory - Current Ratio (CR), Liquid Asset to Total Asset (LA to TA) Capital Management: Paid-up Capital to Required Capital (PC to RC), Total Capital to Total Asset (TC to TA) and Debt to Equity (DE) Ratio Funds Utilization: Total Loan & Lease to Total Deposit (TL&LS to TD), Total Loan & Lease to Total Borrowings (TL&LS to TB) and Total Loan & Lease to Total Deposit & Borrowings (TL&LS to TD&B) Pages VIII

7 Table 17 Table 18 Table 19 Table 20 Table 21 Table 22 Table 23 Table 24 Table 25 Table 26 Table 27 Table 28 Table 29 List of Tables Asset Quality: Total Loan & Lease to Total Asset (TL&LS to TA), Total Investment to Total Asset (TIv to TA) and Classified Loan & Lease to Total Asset (CL&LS to TA) Earning: ROA 1 - Operating Profit to Total Asset (OP to TA), ROA 2 - Net Income Before Tax to Total Asset (NIBT to TA) and ROA 3 - Net Income After Tax to Total Asset (NIAT to TA) Earning: Return on Equity - Net Income After Tax to Total Equity (NIAT to TE) Earning: Interest Income to Net Operating Income (II to NOI) Operational Efficiency: Operating Expense to Net Operating Income (OE to NOI), Staff Expense to Net Operating Income (SE to NOI), and Staff Expense to Total Operating Expense (SE to TOE) Part 5: Comparative Performance Evaluation Based on Ownership Patterns of NBFIs Liquidity: Regulatory - Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) and Non-regulatory - Current Ratio (CR), Liquid Asset to Total Asset (LA to TA Ratio) Capital Management: Paid-up Capital to Required Capital (PC to RC), Total Capital to Total Asset (TC to TA) and Debt to Equity (DE) Ratio Funds Utilization: Total Loan & Lease to Total Deposit (TL&LS to TD), Total Loan & Lease to Total Borrowings (TL&LS to TB) and Total Loan & Lease to Total Deposit & Borrowings (TL&LS to TD&B) Asset Quality: Total Loan & Lease to Total Asset (TL&LS to TA), Total Investment to Total Asset (TIv to TA) and Classified Loan & Lease to Total Asset (CL&LS to TA) Earning: ROA 1 - Operating Profit to Total Asset (OP to TA), ROA 2 - Net Income Before Tax to Total Asset (NIBT to TA) and ROA 3 - Net Income After Tax to Total Asset (NIAT to TA) Earning: Return on Equity - Net Income After Tax to Total Equity (NIAT to TE) Earning: Interest Income to Net Operating Income (II to NOI) Operational Efficiency: Operating Expense to Net Operating Income (OE to NOI), Staff Expense to Net Operating Income (SE to NOI), Staff Expense to Total Operating Expense (SE to TOE) IX

8 List of Figures Figure 1-5 Performance of NBFIs Compared to BFIs Pages Figure 6-40 A Pictorial View of the Comparative Performance Evaluation Based on Establishment Year of NBFIs Figure A Pictorial View of the Comparative Performance Evaluation Based on Listing Status of NBFIs Figure A Pictorial View of the Comparative Performance Evaluation Based on Ownership Patterns of NBFIs List of Appendices Pages Appendix I Indicators and Definitions 73 Appendix II Non-bank Financial Institutions Grouped as Per Year of Establishment 74 Appendix III Non-bank Financial Institutions Grouped as Per Listing Status with the Secondary Market 75 Appendix IV Non-bank Financial Institutions Grouped as Per Ownership Pattern 76 Appendix V CAGR and CV of Different Parameters of NBFIs from (Based on Establishment Year) 77 Appendix VI CAGR and CV of Different Parameters of NBFIs from (Based on Listing in the Exchange) 78 Appendix VII CAGR and CV of Different Parameters of NBFIs from (Based on Ownership Structure) 79 X

9 BB BFI CAR CAGR CL&LS CR CRR CSE CV DE DSE ECB II LA L/C MOF N/A NBFIs NIAT NIBT NOI OE OP PC RC ROA ROE SD SE SLR TA TC TB TL&LS TD TD&B TE TIc TIv TIPS TOE Abbreviation Bangladesh Bank Bank Financial Institution Capital Adequacy Ratio Compound Annual Growth Rate Classified Loan and Lease Current Ratio Cash Reserve Ratio Chittagong Stock Exchange Coefficient of Variation Debt to Equity Dhaka Stock Exchange European Central Bank Interest Income Liquid Asset Letters of Credit Ministry of Finance Not Available Non-bank Financial Institutions Net Income Ater Tax Net Income Before Tax Net Operating Income Operating Expense Operating Profit Paid-up Capital Required Capital Return on Asset Return on Equity Standard Deviation Staff Expense Statutory Liquidity Ratio Total Asset Total Capital Total Borrowing Total Loan & Lease Total Deposit Total Deposit and Borrowing Total Equity Total Income Total Investment Treasury Inflation-Protected Securities Total Operating Expense XI