[Internship Report On

Investment analysis and Portfolio Management

of NBFI sector]

Exam Roll: 110494

 [Internship Report On
Investment analysis and Portfolio Management
of NBFI sector]

Prepared For:

Chairman

Internship placement committee

Prepared by

Exam Roll: 110494

4th year, 8th semester

Batch Number: 20th, BBA Program

Academic session: 2010-11

Institute of Business Administration (IBA-JU)

Jahangirnagar University, Savar, Dhaka 1342.

Date: 20-Feb-15
February 20, 2015

Chairman

Internship placement committee

Institute of Business Administration

Jahangirnagar University

Dear Sir

Subject: Letter of Transmittal

Here is the internship report on “Investment analysis and Portfolio Management of NBFI sector” that
you instructed me to submit by January 10, 2015. I tried to utilize all the knowledge that I gained
during my four years of rigorous education at IBA and three month internship program at IDLC Finance
limited to compose and to write this report.

My internship supervisor, Dr. S M Rafiul Huque, Associate professor, Institute of Business

Administration; Jahangirnagar university, helped me immensely to complete this work. He has
supported me from scratch up to get the report done. Without his guidance and support; I would not
have been able to write this report.

I hope, sir, that you will find this internship report to your liking. I heartily thank you for your support
and guidance throughout my internship placement period.

Regards

Exam Roll: 110494

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ACKNOWLEDGEMENT
I hereby humbly submit my internship report on “Investment analysis and Portfolio
Management of NBFI sector”. I am thankful to the Almighty for giving me the resource and
capability for the completion of this report. I express my gratitude to the Institute of Business
Administration, Jahangirnagar University and Dr. S M Rafiul Huque, Associate professor,
Institute of Business Administration; Jahangirnagar University for arranging such a practical
field related study.
Also I express my sincere gratitude and indebtedness to my supervisor, Professor Mr. Monirul
Islam under whose supervision and proper guidelines, this report has been prepared. Without
his meticulous guidance, I would not be able to prepare this report. His suggestions and
advice have been invaluable.

I also express my gratitude to IDLC Finance Limited for permitting me to do my internship in

their organization and for providing the support that forms the basis of this report. Special
thanks to Abdullah-Al-Rejwan, and for his immense support throughout this journey.

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Table of Contents
1. Introduction ................................................................................................................................. 1
1.1. Title of the study................................................................................................................... 2
1.2. Origin of the Report .............................................................................................................. 2
2. Profile of the organization: IDLC Finance Limited .......................................................................... 2
2.1. Vision ................................................................................................................................... 2
2.2. Mission ................................................................................................................................. 2
2.3. Strategic Objectives .............................................................................................................. 2
2.4. Core Values .......................................................................................................................... 3
2.5. Corporate Division ................................................................................................................ 3
2.5.1. Corporate Finance......................................................................................................... 3
2.5.2. Structured Finance ........................................................................................................ 3
2.6. Consumer Division ................................................................................................................ 4
2.7. SME Division ......................................................................................................................... 4
2.8. Capital Market ...................................................................................................................... 4
2.8.1. Portfolio Management .................................................................................................. 4
2.8.2. Brokerage Services ........................................................................................................ 5
2.8.3. Investment Banking ...................................................................................................... 5
3. Literature review .......................................................................................................................... 6
4. Objective of the study .................................................................................................................. 9
4.1. Broad objective .................................................................................................................... 9
4.2. Specific objectives ................................................................................................................ 9
5. Scope ........................................................................................................................................... 9
6. Methodology ............................................................................................................................. 10
6.1. Data Sources....................................................................................................................... 10
7. Limitations ................................................................................................................................. 10
8. Comparative Analysis ................................................................................................................. 11
8.1. Total Deposit ...................................................................................................................... 11
8.2. Total Bank borrowings ........................................................................................................ 12
8.3. Total Loan ........................................................................................................................... 13
8.4. Lending Rate....................................................................................................................... 16
8.5. Cost of Fund ....................................................................................................................... 17
8.6. Net Interest ........................................................................................................................ 17

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 8.7. Investment Income ............................................................................................................. 18
8.8. Margin loan ........................................................................................................................ 20
8.9. Dividend & capital gain on share ......................................................................................... 20
8.10. Commissions Exchange and Brokerage............................................................................ 21
8.11. Income from brokerage commissions ............................................................................. 21
8.12. Operating Expense .......................................................................................................... 22
8.13. Asset quality ................................................................................................................... 23
8.14. Non-Performing Loan...................................................................................................... 24
8.15. Total Provision ................................................................................................................ 25
8.16. PAT ................................................................................................................................. 25
8.17. ROA ................................................................................................................................ 26
8.18. ROE ................................................................................................................................ 26
9. Findings...................................................................................................................................... 27
9.1. Differences in Business Model: ........................................................................................... 27
9.2. Stability of Profit ................................................................................................................. 28
9.3. Growth Driver..................................................................................................................... 28
9.4. Asset Quality ...................................................................................................................... 28
9.5. Profitability ......................................................................................................................... 28
10. Conclusion.............................................................................................................................. 29
11. Appendix .................................................................................................................................. A
12. References ............................................................................................................................... J

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List of Figures
Figure 1: Core values of IDLC Finance Limited....................................................................................... 3
Figure 2: Total Deposit of IDLC vs LankaBangla ................................................................................... 11
Figure 3: Total Deposit Growth .......................................................................................................... 11
Figure 4: Total Bank Borrowing of IDLC vs LankaBangla ...................................................................... 12
Figure 5 : % of Liabilities of IDLC ......................................................................................................... 12
Figure 6% of Liabilities of LankaBangla ............................................................................................... 13
Figure 7: Total loan-IDLC vs LankaBangla ............................................................................................ 13
Figure 8: Total loan growth-IDLC vs LankaBangla ................................................................................ 14
Figure 9: Total loan composition of IDLC ............................................................................................ 14
Figure 10: Industrial Loan composition of IDLC ................................................................................... 15
Figure 11: Total loan composition of LankaBangla .............................................................................. 15
Figure 12: Industrial loan composition of LankaBangla ....................................................................... 16
Figure 13: Real Estate loan-IDLC vs LankaBangla ................................................................................ 16
Figure 14: Lending Rate IDLC vs LankaBangla ..................................................................................... 17
Figure 15: Cost of Fund- IDLC vs LankaBangla ..................................................................................... 17
Figure 16: % Net Interest- IDLC vs LankaBangla .................................................................................. 18
Figure 17: % Investment Income- IDLC vs LankaBangla ....................................................................... 18
Figure 18: Investment in Government Securities ................................................................................ 19
Figure 19: Stock market exposure- IDLC vs LankaBangla ..................................................................... 19
Figure 20: Stock market exposure in terms of total equity- IDLC vs LankaBangla ................................ 20
Figure 21: Margin Loan- IDLC vs LankaBangla ..................................................................................... 20
Figure 22: Dividend & capital gain on share- IDLC vs LankaBangla ...................................................... 21
Figure 23: Commissions Exchange and Brokerage- IDLC vs LankaBangla ............................................. 21
Figure 24: Commissions Exchange and Brokerage- IDLC vs LankaBangla ............................................. 22
Figure 25: Operating Expense- IDLC vs LankaBangla ........................................................................... 22
Figure 26: OPEX % Total operating income- IDLC vs LankaBangla ....................................................... 23
Figure 27: Asset quality- IDLC ............................................................................................................. 23
Figure 28: Asset quality- LankaBangla ................................................................................................ 24
Figure 29: Non-Performing Loan- IDLC vs LankaBangla ....................................................................... 24
Figure 30: NPL+SMA- IDLC vs LankaBangla ......................................................................................... 25
Figure 31: Total Provision- IDLC vs LankaBangla ................................................................................. 25
Figure 32: PAT- IDLC vs LankaBangla .................................................................................................. 26
Figure 33: ROA- IDLC vs LankaBangla.................................................................................................. 26
Figure 34: ROE- IDLC vs LankaBangla .................................................................................................. 27

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EXECUTIVE SUMMARY

Non-Bank Financial Institutions (NBFIs) in Bangladesh have been playing a significant role in the
financial system of the country. This sector has emerged as increasingly important segment of the
financial system because of the rapidly rising demand for long term financing and equity type services.
IDLC Finance Ltd. and LankaBangla Finance Ltd. are currently the two top-most NBFIs in the country.

The country has seen tremendous ups and downs in the economy in the last few years. Some were
due to global recession and some were due to the country’s inherent political instability. But amongst
all these Bangladesh has resiliently growth at a GDP growth rate of above 6%. And country’s financial
institutions are at the heart of the growth. The study underlies the differences in business models of
the country’s to leading financial institutions.

There are more than twenty Non-Bank Financial Institutions (NBFIs) still working in Bangladesh but
only two NBFI (IDLC and LankaBangla) play vital rule in overall NBFI sector. We will discuss only those
two non-bank financial institutions. Based on research we will make a decision which stock we will
invest IDLC or LankaBangla.

The study indicates that there is significant difference in business models and revenue compositions
between the two financial institutions. The differences in business practices provide different tipping
points between growth and stability. IDLC shows strength in its stable banking activities and steady
growth whereas LankaBangla focuses more on the capital market and somewhat risky ventures and
enjoys higher return by accommodating higher risk.

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1. Introduction
Non-Bank Financial Institutions (NBFIs) in Bangladesh have been playing a significant role in the
financial system of the country. This sector has emerged as increasingly important segment of the
financial system because of the rapidly rising demand for long term financing and equity type services.
NBFIs added differentiation to the bank based financial market of Bangladesh. This sector has turned
increasingly into rival of the banking sector in terms of firm size and also offering dynamic services in
line with the traditional services. NBFIs in Bangladesh play major role in filling gaps in financial
intermediation by providing diversified investment instruments and risk polling services. NBFIs have
achieved impressive growth in recent years reflecting the process of financial innovation and holding
the promise of deepening financial intermediation in long term financing needs.

NBFIs were incorporated in Bangladesh under the then Companies Act, 1913 and were being
regulated by the provisions contained in Chapter V of the Bangladesh Bank Order, 1972. Later, to
remove the regulatory deficiency and also to define a wide range of activities to be covered by NBFIs,
a new statute titled the 'Financial Institution Act, 1993' was enacted in 1993, followed by the 'Financial
Institution Regulation, 1994'. NBFIs have been given license and regulated under the Financial
Institution Act, 1993. There are 30 NBFIs licensed under this act. As per the Financial Institution
Regulation, 1994, at present, minimum paid up capital for NBFIs is Taka 1.0 billion. So far 20 out of 30
NBFIs raised capital through issuing IPO, while three are exempted from the issuance of IPO. Other
major sources of funds of NBFIs are Term Deposit, Credit Facility from Banks and other NBFIs, Call
Money as well as Bond and Securitization. NBFIs business line is narrow in comparison with Bank's in
Bangladesh. Now a day's NBFIs are working as multi- product financial institutions.

IDLC Finance Ltd. Commenced Its Journey in 1985, as the 1st ever leasing company in the country.
IDLC was licensed as a financial institution by the country’s central bank Bangladesh bank, following
the enactment of the financial institution Act 1993. Over the last two and half decades, IDLC has
grown in tandem with the country’s transition in to a developing country and has emerged as
Bangladesh’s leading multi-product financial institution. To encapsulate the evolving nature of the
company, IDLC has changed its name IDLC finance ltd. from earlier Industrial Development Leasing
Company of Bangladesh Limited in August 2007. Since 1985 when IDLC was formed as the pioneering
leasing company in Bangladesh, the company continues to evolve as an innovative financial solutions
provider. IDLC is now able to offer its customers integrated and customized financial solutions all
under one roof.

LankaBangla Finance Limited started its journey long back in 1997 as a joint-venture financial
institution with multinational collaboration having license from Bangladesh Bank under Financial
Institution Act-1993. Now LankaBangla is one of country’s leading providers of financial services
including corporate financial services, stock broking, corporate advisory and wealth management
services. Under the broadest umbrella of products and service offerings, it is the lone financial
institution to operate credit card (MasterCard and VISA) and also provide third party card processing
services to different banks in Bangladesh. LankaBangla is a primary dealer of government securities
since November 2009. Since 2006 LankaBangla has been listed in both DSE & CSE in Bangladesh.

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1.1. Title of the study
“Investment analysis and Portfolio Management of NBFI sector”

1.2. Origin of the Report

This report is prepared as a mandatory requirement of the internship program under the BBA
program at the Institute of Business Administration (IBA), Jahangirnagar University. The organization
which this report represents is IDLC Finance Limited. I was assigned to conduct a study on ―Two
biggest NBFI, IDLC and LankaBangla. LankaBangla is the biggest competitor of IDLC in the NBFI sector.
My faculty supervisor Dr. S M Rafiul Huque, Associate professor, Institute of Business Administration,
Jahangirnagar University also approved the topic and authorized me to prepare this report as part of
the fulfillment of internship requirement.

2. Profile of the organization: IDLC Finance Limited

IDLC Finance Limited is a multi-product financial institution. It was established in 1985 with the
collaboration of reputed international development agencies such as:
 Korean Development Leasing Corporation (KDLC), South Korea
 Kookmin Bank, South Korea
 International Finance Corporation (IFC) of the World Bank Group
 Aga Khan Fund for Economic Development (AKFED)
 German Investment and Development Company (DEG)
Although it initially started with lease financing, IDLC has built a diversified portfolio of products and
services over the years with the objective of modernizing the financial service industry of Bangladesh.
With this promise, IDLC plays a pioneering role in introducing and popularizing a variety of financial
instruments suiting ever-changing requirements of its clients.

The company has two fully owned subsidiaries. Its merchant banking division is IDLC Investment
Limited. (IDLCIL) and brokerage services is IDLC Securities Limited (IDLCSL)

2.1. Vision
We will be the best financial brand in the country.

2.2. Mission
We will focus on quality growth, superior customer experience and sustainable business practices.

2.3. Strategic Objectives

 Grow and develop our talent pool
 Fully leverage new core banking platform
 Optimize distribution points
 Grow and diversify funding sources
 Grow sales and service capabilities in Consumer Division
 Aggressively grow SME portfolio
 Focus on top-tier clients in Corporate

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  Consolidate capital market operations and enhance capabilities
 Embrace internationally accepted corporate governance and sustainable business
practices

2.4. Core Values

Figure 1: Core values of IDLC Finance Limited

2.5. Corporate Division

2.5.1. Corporate Finance

IDLC has extensive knowledge, expertise and experience to offer a range of financial solutions in
response to the needs of a broad spectrum of clientele, comprising of local and multinational
corporate houses in Bangladesh. The services provided are-

 Lease Financing
 Term Loan Financing
 Working Capital Financing
 Project Financing
 Specialized Products

2.5.2. Structured Finance

Structured Finance indicates a service that generally involves highly complex financial transactions
offered by many large financial institutions for companies with very unique financing needs. These
financing needs usually don't match conventional financial products such as a loan.Services offered in
structure finance if IDLC are-

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  Fund-Raising
 Advisory Services
 Securitization of Assets

2.6. Consumer Division

Consumer division is the newest power bank for IDLC with its very powerful deposit engine. It also
caters the consumer loans and retail financial service activities of the organization. The main services
provided are-

 Deposit Schemes
 Home Loan
 Car Loan
 Personal Loan
 Registrar Loan

2.7. SME Division

IDLC is aiming to become the leader in SME nation-wide. IDLC SME is well reputed for its activities and
has been globally recognized by FMO and other institutions. The main services provided by SME
division are-

 Small Enterprise Finance

 Medium Enterprise Finance
 Supplier Finance
 Women Entrepreneur Loan
 Commercial Vehicle Loan
 JICA-SME Loan

2.8. Capital Market

2.8.1. Portfolio Management

IDLC offers Portfolio Management services to both individual and institutional investors through our
subsidiary, IDLC Investments Limited. Investors can avail our services through our major discretionary
investment accounts – MAXCAP and Cap Invest. Products offered are-

 MAXCAP
 Cap Invest
 Profit Loss Sharing Scheme
 Capital Protected Scheme

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2.8.2. Brokerage Services
 Trade Execution in Dhaka and Chittagong Stock Exchange Limited
 Appointment of dedicated and skilled sales representative
 Opportunities for trading through different financial instruments

2.8.2.1. Custodial Services

 Safe keeping of securities
 Exclusive arrangement for clients to keep their shares in safe custody in our vaults

2.8.2.2. Full service Depository Participant (DP) of CDBL

 Beneficial Owner (BO) account opening and maintenance
 Dematerialization – the process of converting physical scripts to script-less shares to the CDBL
part of the Company register
 Re-materialization
 Freeze request and release request and suspensions
 Transfers and multiple accounts movement
 Pledging, un-pledging and confiscation
 BO International Securities Identification Number (ISIN) balances and master maintenance
inquiry

2.8.3. Investment Banking

With a rich experience in Investment Banking, IDLC assists clients throughout the IPO process, along
with sustained market support. Core strength lies in

 Correctly positioning the company in the financial market to procure the right profile of
institutional and retail investors
 Valuation of the enterprise
 Showcasing the enterprise to the right investors
 Optimum pricing of the companies
 Devising the best financial structure, and
 Completing the entire process smoothly and efficiently, leveraging our strong co-ordination
with regulatory authorities

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3. Literature review

The performance of a financial institution is a difficult thing to measure with just a few numbers. It is
different in different regions, in different period of times and may have different standards in the
same industry to be considered as comparable. As our research in this report is a comparison between
to like non-banking financial institutions. Therefore for our purpose we consider the following
matrices for our comparison.

Deposit is money placed into a banking institution for safekeeping. Deposits are made to deposit
accounts at a banking institution, such as savings accounts, checking accounts and money market
accounts. The account holder has the right to withdraw any deposited funds, as set forth in the terms
and conditions of the account. The "deposit" itself is a liability owed by the bank to the depositor (the
person or entity that made the deposit), and refers to this liability rather than to the actual funds that
are deposited. Deposits are the driving force for a financial institution.

Borrowing of low cost funds from banks is one of the prime sources of financing for non-banking
financial institutions in Bangladesh. We consider this matrix for our purposes in this analysis to get an
overview of the dependency of the selected financial institution on other institutions.

Percentage of Liabilities in terms of total asset gives an idea of the debt burden of the financial
institution. It is a matrix we consider in our analysis.

Loan is the asset for a financial institution. Total loan is the prime measure of business performance of
a banking financial institution. We have considered this matrix in our studies for comparison purpose.
It is one of the major indicators for the performance of an NBFI. We must analyze the growth of loans,
composition, and special mentions in the compositions for our analysis purposes.

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of
assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate
(APR). Lending rate is the determinant of the top line for a banking institution. We consider the
variation of the lending rates of the institutions for consideration.

The interest rate paid by financial institutions for the funds that they deploy in their business. The cost
of funds is one of the most important input costs for a financial institution, since a lower cost will
generate better returns when the funds are deployed in the form of short-term and long-term loans
to borrowers. The spread between the cost of funds and the interest rate charged to borrowers
represents one of the main sources of profit for most financial institutions.

Investment income is the income coming from interest payments, dividends, capital gains collected
upon the sale of a security or other assets, and any other profit that is made through an investment
vehicle of any kind. In Bangladesh Investment income of NBFIs majorly comprise of income from
secondary capital markets. There can also be other sources of investment income for the institutions.
We will look into these compositions for our analysis purpose.

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Margin loan is a loan from a broker to a client that essentially functions as a margin account. The
funds may be used for any purpose, and the loan is secured with securities owned by the client. It is
not yet tracked by Bangladesh Bank CIB. It is a risky zone for financial institutions.

Someone who gets paid by the brokerage company for which he works for each order of securities he
executes on a customer's behalf. The commission structure can encourage unethical behavior by
unscrupulous commission brokers. For example, a dishonest commission broker may engage in a
practice called churning, which means executing multiple trades in a customer's account for the sole
purpose of generating more commissions. The additional trades do not benefit the customer.

It is a category of expenditure that a business incurs as a result of performing its normal business
operations. One of the typical responsibilities that management must contend with is determining
how low operating expenses can be reduced without significantly affecting the firm's ability to
compete with its competitors. It is also known as "OPEX".

A measure of the likelihood of default of a loan or lease, combined with a measure of its marketability.
That is, asset quality is a measure of the price at which a bank or other financial institution can sell a
loan or lease to a third party, as determined by the borrower or lessee, especially by a bond issuer.
Credit ratings agencies determine credit quality in order to provide bond ratings; they may change
these from time to time

Loan becomes non-performing when it cannot be recovered within certain stipulated time that is
governed by some respective laws. So, non-performing loan is defined from the institutional point of
view, generally from the lending institutions side. Loan may also be non- performing if it is used in a
different way than that for which it has been taken. This is the user’s point of view. But, here we will
confine the definition to the institutional point of view. Loan classification means giving each and
every loan case a status unclassified, sub-standard, doubtful or bad loss through verification of
borrower’s repayment performance on particular date while provisioning means setting aside fund
from the profit (profit before provision and taxes) against possible loan loss. This is obviously essential
for determining the financial health and efficiency of the banking sector. Besides, a proper loan
classification and provisioning system ensures credibility of the financial system that in turn restores
trust and confidence in the minds of the depositors. In this case, loan becomes non-performing when
it is classified as bad and loss for which Bangladesh Bank requires 100% provisioning by the scheduled
commercial banks (as per BRPD circular). Under Basel-II, loans past due for more than 90 days are
non-performing.

It is an expense set aside as an allowance for bad loans (customer defaults, or terms of a loan have to
be renegotiated, etc.). Bangladesh bank has a set guideline on how to provision loans in different
category and how to report them on the financial reports. It is Also known as a "valuation allowance"
or "valuation reserve".

It is a company's total earnings (or profit). Net income is calculated by taking revenues and adjusting
for the cost of doing business, depreciation, interest, taxes and other expenses. This number is found
on a company's income statement and is an important measure of how profitable the company is over
a period of time. The measure is also used to calculate earnings per share. Often referred to as "the
bottom line" since net income is listed at the bottom of the income statement.

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ROA tells you what earnings were generated from invested capital (assets). ROA for public companies
can vary substantially and will be highly dependent on the industry. This is why when using ROA as a
comparative measure, it is best to compare it against a company's previous ROA numbers or the ROA
of a similar company.

The assets of the company are comprised of both debt and equity. Both of these types of financing are
used to fund the operations of the company. The ROA figure gives investors an idea of how effectively
the company is converting the money it has to invest into net income. The higher the ROA number,
the better, because the company is earning more money on less investment. For example, if one
company has a net income of $1 million and total assets of $5 million, its ROA is 20%; however, if
another company earns the same amount but has total assets of $10 million, it has an ROA of 10%.
Based on this example, the first company is better at converting its investment into profit. When you
really think about it, management's most important job is to make wise choices in allocating its
resources. Anybody can make a profit by throwing a ton of money at a problem, but very few
managers excel at making large profits with little investment.

The ROE is useful for comparing the profitability of a company to that of other firms in the same
industry. There are several variations on the formula that investors may use:

1. Investors wishing to see the return on common equity may modify the formula above by
subtracting preferred dividends from net income and subtracting preferred equity from shareholders'
equity, giving the following: return on common equity (ROCE) = net income - preferred dividends /
common equity.

2. Return on equity may also be calculated by dividing net income by average shareholders' equity.
Average shareholders' equity is calculated by adding the shareholders' equity at the beginning of a
period to the shareholders' equity at period's end and dividing the result by two.

3. Investors may also calculate the change in ROE for a period by first using the shareholders' equity
figure from the beginning of a period as a denominator to determine the beginning ROE. Then, the
end-of-period shareholders' equity can be used as the denominator to determine the ending ROE.
Calculating both beginning and ending ROEs allows an investor to determine the change in
profitability over the period.

Normalized earnings are the earning adjusted for cyclical ups and downs in the economy. On the
balance sheet, earnings adjusted to remove unusual or one-time influences.

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4. Objective of the study

4.1. Broad objective

To find out a better investment opportunity from the NBFI sector

4.2. Specific objectives

 To conduct a detailed comparative analysis of the different metrics mentioned.
 To identify the differences in business models of the companies
 To find out the drivers of growth of the selected companies
 To understand the asset quality and its implications of the companies
 To calculate profitability measures of the selected companies

5. Scope

This report analyses the competitive differences between IDLC Finance &LankaBangla Finance from
the data available publicly. Data are taken from previous annual reports and public sources such as
daily newspapers and Bangladesh Bank website. Data unavailable in these sources might not be
reflected in the analysis.

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6. Methodology

The research purpose in this study will be analytical and as much visual as possible. It will contain
comparative studies between the companies and will present as much graphically as possible for ease
of understanding.

The study is a cross sectional study of information over a time period. I have conducted the research
based on the following:

6.1. Data Sources

 Primary data:
I. Annual Reports of the company.
II. Bangladesh Bank website.
III. Interview with the management.
 Secondary data: Articles and text from websites, books and magazines etc. relating to the
topic concerned.
 Analytical tools
1. Facilities: Microsoft Excel, relevant statistical methods, PCs, internet, printers
2. Manpower: 1 person

7. Limitations
 Due to restriction of time and access the data couldn’t be analyzed more deeply.
 A complete analysis of the industry might have provided with a better comparative picture.
 In some cases the annual reports were vague in the notes where explanation was needed.

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8. Comparative Analysis
The data collected from the annual reports of the companies are analyzed in different matrices below
and presented graphically. All values are presented in million BDT or in percentage terms.

8.1. Total Deposit

Total deposit size of IDLC is around 30 billion BDT compared to 10 Billion of LankaBangla. The industry
averages of total deposit of NBFI sector is 8 Billion. The data shows that deposit engine of IDLC have
been stronger than LankaBangla during all the periods in the last few years.

Figure 2: Total Deposit of IDLC vs LankaBangla

The advantage of IDLC in bringing in deposits from clients is contributed by its FMCG model sales force
and a heavy concentration and large network focused in bringing in deposit. According to IDLC
management IDLC deposit engine is capable of bringing in 20 Billion BDT deposit in a month.

Figure 3: Total Deposit Growth

Though LankaBangla is far behind in the amount marking deposits for the institutions, the company
has shown superior growth in bringing in deposits in the large few years. For our analysis purpose we

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still consider IDLC to be stronger in this aspect because of the deposit portfolio size the company
carries. The industry averages of total deposit growth of NBFI sector is 26.1%.

8.2. Total Bank borrowings

Total bank borrowing dependency of LankaBangla is clearly explained by its lower capacity to bring in
deposits from the clients. LankaBangla is more dependent on bank borrowing than IDLC as shown by
the data from the past few years. The industry averages of total Bank borrowing of NBFI sector is 3888
million.

Figure 4: Total Bank Borrowing of IDLC vs LankaBangla

IDLC shows significant increase in bank borrowing in 2013. The treasury department of IDLC Finance in
this regard explains that, treasury is a profit generating unit itself and IDLC increase its dependency on
Bank borrowing this year because of the attractive rates from banks due to inability of banks to lend
the fund elsewhere. Industry average of Borrowings 20%, Deposits 60% and other liabilities 20%.

Figure 5 : % of Liabilities of IDLC

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Data on percentage of total liability explains the fact that IDLC is mostly dependent on its own deposit
engine whereas LankaBangla is mostly dependent on bank borrowing.

Figure 6% of Liabilities of LankaBangla

8.3. Total Loan

Loans are revenue-generating assets for both financial institutions. Data presented in the graph
explains dominance of IDLC in term of total loan portfolio. IDLC has around 40 billion in loan portfolio
whereas LankaBangla has around 25 billion. Industry average is only 13 billion.

Figure 7: Total loan-IDLC vs LankaBangla

13 | P a g e
Not only in terms of total loan portfolio size but IDLC also shows dominance in loan portfolio growth
from year-to-year. Last year loan portfolio growth of IDLC was around 33.3% against 25.6% of
LankaBangla. IDLC had 78.9% growth the previous year against LankaBangla’s 23.7%. Industry average
is 21.8%.

Figure 8: Total loan growth-IDLC vs LankaBangla

Loan compositions of the companies differ significantly when they are compared with each other.
IDLC has higher exposure in securitized real estate loans, industrial loans and SME loans in the year
2013.

Figure 9: Total loan composition of IDLC

14 | P a g e
And in industrial loan section IDLC has very high exposure in IT sector followed by RMG and cement
sector. It has least exposure in leather and chemicals because the company has a strict policy when
lending to such borrowers regarding the environmental issue.

Figure 10: Industrial Loan composition of IDLC

LankaBangla’s exposure is mostly in Industrial loans in the year 2013. The huge other loans sections
mostly contributes to the margin loan portfolio of the company which we will discuss later in detail in
our analysis.

Figure 11: Total loan composition of LankaBangla

In the industrial loan section LankaBangla’s portfolio is mostly invested in Energy & Power sector
followed by RMG and Cement & Ceramic sector. A composition is very different from that of IDLC.

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 Figure 12: Industrial loan composition of LankaBangla

If we compare the real estate loan of the companies with that of the market leader in this section
DBH, we see that portfolio size of IDLC was less than half of that of DBH and contributes to around
25% of the loan portfolio of IDLC. This year IDLC management has confirmed that it has beaten DBH
on month-to-month basis for last 18 months straightforward. In this sector LankaBangla is far behind
in the competition. In 2013 The industry average of real estate loan is 8,344 million.

Figure 13: Real Estate loan-IDLC vs LankaBangla

8.4. Lending Rate

Lending rate of IDLC is comparatively higher than that of LankaBangla. Last year it was around 15.2%
against that of 14.2% of LankaBangla. Industry average of lending rate of NBFI sector is 16.8%. IDLC
has a lower cost of fund than that of LankaBangla but IDLC has a much higher lending rate. As a result
IDLC enjoy higher spread than LankaBangla.

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 Figure 14: Lending Rate IDLC vs LankaBangla

8.5. Cost of Fund

IDLC has a lower cost of fund largely contributed by its strong deposit machine. Less dependency on
bank borrowing has given IDLC competitive edge in aspect of cost of fund. Industry average of cost of
fund of NBFI sector is 14.8%.Last year cost of fund was around 10.6% for IDLC against 12.2% of that of
LankaBangla.

Figure 15: Cost of Fund- IDLC vs LankaBangla

8.6. Net Interest

Net interest of IDLC is around 75.2% against LankaBangla’s significantly lower 35.4%. It has been
IDLC’s competitive corner throughout all the periods stated. Industry average of net interest in terms
of total income of NBFI sector is 65.66%. This is because of the larger spread and more diversified
portfolio of IDLC compared to that of LankaBangla’s portfolio.

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 Figure 16: % Net Interest- IDLC vs LankaBangla

8.7. Investment Income

When we look at investment income as a percentage of total income for both the companies we get a
completely different picture. A significantly large portion of LankaBangla’s income comes from in
Investments. Industry average of investment income in terms of total income of NBFI sector is 12.5%
Last year the pie was around 33.7% of total LankaBangla’s income. IDLC has less than 2% of the
income from investments.

Figure 17: % Investment Income- IDLC vs LankaBangla

LankaBangla is a primary dealer of government securities, which IDLC is not. Industry average of
government securities is 726 million. LankaBangla’s investment in government securities was around
1.1 billion BDT last year and was significant in all of the previous years in discussion.

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 Figure 18: Investment in Government Securities

A large portion of LankaBangla’s earning comes from its exposure in the secondary stock market.
Industry average of stock market exposure of NBFI sector is 447 million or 0.5 billion. Total exposure
of LankaBangla in stock market in last year was around 2.5 billion BDT against 0.7 billion of IDLC. And
LankaBangla has shown superior earnings over time from stock market than any other financial
company.

Figure 19: Stock market exposure- IDLC vs LankaBangla

If we consider stock market exposure in terms of total equity we still get the same picture.
LankaBangla has a lot larger exposure in stock market in terms of equity than IDLC. Industry average
of stock market exposure in terms of total equity is 10.23%. Last year the exposure was around 35.6%
compared to that of 13.5% of IDLC.

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 Figure 20: Stock market exposure in terms of total equity- IDLC vs LankaBangla

8.8. Margin loan

Margin loan portfolio of LankaBangla is significantly higher than that of IDLC. And it is also observable
that the margin loan portfolio of IDLC is gradually decreasing over time against that of LankaBangla’s
one which is increasing. IDLC’s management has confirmed that it has planned the approach to
decrease exposure in margin loans. Industry average of margin loan is 3557 million.

Figure 21: Margin Loan- IDLC vs LankaBangla

8.9. Dividend & capital gain on share

Due to its larger exposure and stronger presence in the secondary stock market, LankaBangla’s
earning from dividends and capital gain on shares in dramatically higher than that of IDLC’s. Industry
average of dividend and capital gain on share is 57 million. Last year it was 656 million against that of
IDLC’s 54 million.

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 Figure 22: Dividend & capital gain on share- IDLC vs LankaBangla

8.10. Commissions Exchange and Brokerage

LankaBangla also has a bigger pie of its earning from commission exchange and brokerage fees.
Industry average of commission exchange and brokerage in terms of total income is 9.8% in 2013.
LankaBangla is currently the largest brokerage house with around 5% market share. IDLC holds the 5th
position in the market. IDLC is recently focusing on its brokerage services.

Figure 23: Commissions Exchange and Brokerage- IDLC vs LankaBangla

8.11. Income from brokerage commissions

As expected by its market power and presence, LankaBangla earns a large brokerage commission than
that of IDLS’s. Last year LankaBangla earned around 477 million from brokerage fees against 150
million of IDLC. Brokerage fee earning of LankaBangla has always been higher as shown by the data.
Industry average of income from brokerage commission is 304 million.

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 Figure 24: Commissions Exchange and Brokerage- IDLC vs LankaBangla

8.12. Operating Expense

Operating expense of IDLC is significantly higher than that of LankaBangla. In the aspect of manpower,
IDLC is twice the size of that of LankaBangla and due to difference in business model and exposures
they have different set of operating expenses. Industry average of operating expense is 493 million.
IDLC has a bigger network to cater its banking services which can be stable source of revenue but has
a comparatively lower margin than that of income from exposure in stock market like LankaBangla.

Figure 25: Operating Expense- IDLC vs LankaBangla

IDLC’s operating expense as % of its operating income is also higher. . Industry average of operating
expense in terms of total income is 43.48%. It has been higher for LankaBangla in the past, but recent
expansion in business and also manpower of IDLC and their intense focus on consumer lending, which
contributes to lower attrition, has increased the operating expenditure in the recent years.

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 Figure 26: OPEX % Total operating income- IDLC vs LankaBangla

8.13. Asset quality

IDLC showed a weaker asset quality in the year 2013, which has been referred by the management of
IDLC as ‘cleaning the books’. It has classified around 2.8 billion of its loan portfolios in the year 2013.

Figure 27: Asset quality- IDLC

LankaBangla has shown a lesser amount of classified assets in the year 2013 compare to that of IDLC.
Most of its assets are tied into margin loan account and those accounts do not default or show
unrealized losses till those is realized. Bangladesh bank is taking initiative to disclose unrealized loss
from the margin loan portfolios. That has a chance of hitting the LankaBangla portfolio in the future.

23 | P a g e
 Figure 28: Asset quality- LankaBangla

8.14. Non-Performing Loan

When NPL is compared IDLC has always shown a better performance than that of LankaBangla in the
previous year’s except for the year 2011 while ‘cleaning the books’. At the moment the NPL of IDLC’s
portfolio is around 1.52%, which is the lowest in the industry confirmed by different sources.

Figure 29: Non-Performing Loan- IDLC vs LankaBangla

NPL+SMA show a better measure of non-performing loans than the regular pictures. If we compare
that picture, we still get the same results. Industry average of NPL+SMA is 9.45% which is greater than
NPL+SMA of both IDLC and LankaBangla.

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 Figure 30: NPL+SMA- IDLC vs LankaBangla

8.15. Total Provision

Total provision of LankaBangla has always been higher than that of IDLC’s. industry average of total
provision of NBFI sector is 91 million. Last year LankaBangla’s provision was around 328 million against
IDLC’s 193 million.

Figure 31: Total Provision- IDLC vs LankaBangla

8.16. PAT
When comparing PAT, both companies go head to head. IDLC Finance’s better and stronger banking
services are countered by LankaBangla’s stronger capital market exposure and gains from brokerage
services and investment incomes. Industry average of PAT is only 295 million in last year. Last year

25 | P a g e
Profit after tax for LankaBangla was 955 million against 669 million of that id IDLC’s. In last 3 out of 4
years, LankaBnagla has shown a higher PAT than that of IDLC.

Figure 32: PAT- IDLC vs LankaBangla

8.17. ROA
The return on asset for LankaBangla is also higher which can be explained by its income mostly from
investments and lower operating expenses. Industry average of ROA of NBFI sector is 1.6%.
Theoretical standard of ROA is 10.3 based on essentials of managerial finance by Besley & Brigham.

Figure 33: ROA- IDLC vs LankaBangla

8.18. ROE
LankaBangla also shows a higher return on equity than that of IDLC in 2013. LankaBangla’s ROE is
13.6% compared to that of 12.5% of that of the return on equity of IDLC. Industry average of ROE is
only 8.6% which is comparatively lower than ROE of both IDLC and LankaBangla. That was due to the

26 | P a g e
higher provisioning by IDLC than that of LankaBangla’s. In all the previous year’s ROE of IDLC was
comparatively higher. But Theoretical standard of ROE is 17.7 based on essentials of managerial
finance by Besley & Brigham.

Figure 34: ROE- IDLC vs LankaBangla

8.19. Debt ratio and P/E ratio

Debt ratio of LankaBankla is much better than IDLC. In 2013, debt ratio of LankaBangla is 73% where
IDLC is 83% but industry average is only 65%. Theoretical standard of debt ratio is only 50% based on
essentials of managerial finance by Besley & Brigham. In terms of debt ratio, IDLC is more vulnerable
than LankaBangla.

P/E ratio represents how much time will required recovering the investment cost. So the lower P/E
ratio is better than higher P/E ratio for an investor. In terms of P/E ratio IDLC is better than
LankaBangla because in 2013 P/E ratio of IDLC is 10.2 times and LankaBangla’s P/E ratio is 11.7 times.
Theoretical standard of P/E ratio is 15 times based on essentials of managerial finance by Besley &
Brigham. Based on standard both stocks are potential enough for investment.

9. Findings
The findings of the total analysis can be summarized in following sections-

9.1. Differences in Business Model:

IDLC is more focused in banking services where LankaBangla has a motivation towards investment
strategies. IDLC has a larger portfolio and more concentration in the banking activities than such as
collection of deposits, providing loans of different kinds etc. whereas, LankaBangla’s focus is more on
investment in share market, government securities etc.

27 | P a g e
IDLC has an organizational design focused to serve is banking activities throughout its large national
network. This is a stable model in all stages of a cycle in economy. LankaBangla focuses more on
research of securities for investment and earns a large profit from its investment services. IDLC has a
large network to cater its own borrowing engine and lower cost of fund whereas LankaBangla with its
5% share among brokerage service provider has strong market power and market making capabilities.

9.2. Stability of Profit

IDLC has a stable and sustainable business model and hence has more stable profit than that of
LankaBangla. LankaBangla’s business model has made its earnings more variable because of the
volatile nature of the secondary capital market in Bangladesh.

9.3. Growth Driver

The growth driver of IDLC comes from its banking activities and its customer oriented consumer and
SME products. IDLC SME has been market leader on month-to month basis for last 18 months and
consumer division is the current growth leader in market for home loans and car loans. Its diversified
portfolio has given it a steady growth.

LankaBangla has a powerful capital market exposure and has the power to make the market. Their
research service gives it access among foreign clients who are interested in investing in the equity
market of Bangladesh. Though cyclic and highly correlated with stock market growth, it is a powerful
growth driver nonetheless.

9.4. Asset Quality

After taking losses from the margin loan portfolio from the 2011 stock market turmoil, IDLC has a
better than ever asset portfolio with 1.52% NPL and a very diversified deposit and loan portfolio which
has made its business much more stable. IDLC aims for “Vision 2020” which is to turn to company
asset size to 2000 billion BDT by year 2020 through sustainable business practice and has aimed ever
since to bring in sustainable stable businesses. Its loans are mostly secured and deposits are mostly
from consumer depositors to prevent the organization from large attrition of portfolio.

On the other hand LankaBangla has increased its margin loan portfolio every year. It is sustainable for
LankaBangla due to its market power and leading brokerage services. In future any guideline regarding
disclosure of unrealized gains/losses from investment can make its earning more vulnerable unless to
stock market picks up at a faster pace. But the foreign trades of LankaBangla have put the
organization in a very strong footing.

9.5. Profitability
As reflected in ROA and ROE, LankaBangla shows higher profitability. But as shown by its PAT over
time, its PAT growth is highly cyclic and the asset portfolio is mostly invested in risky assets such as
margin loan products for the equity market. Though IDLC shows lower profitability in terms of ROA
and ROE, the market dominance is business segments and diversification of asset portfolio ensures
stable growth over time.

28 | P a g e
10. Conclusion
The market power of LankaBangla has in secondary capital market in largely due to LankaBangla’s
focus in stock market and earlier initiation of investment research activities. Investment research
activities have gained LankaBangla access to the foreign investors willing to invest in Bangladesh
equity market. Along with that and powerful trade execution service LankaBangla has made itself the
market leader in the sector.

IDLC has mostly focused in its banking activities in the past year. Though IDLC has one of the strongest
reputations in research community and in Investment Banking, the organization has minimized its
focus on stock market in the previous years. But recently IDLC has put in focus in in brokerage and
research activities. We might be able to see some changes in market dynamics in the up-coming years.

The most important or critical Question is that which stock I will invest IDLC or LankaBangla. Both
stocks are equally potential for investing in secondary market. But in long run IDLC is more stable
than LankaBangla because of its consistent growth in profit margin, deposit, and loan. IDLC also enjoy
a better position in terms of asset quality. So, I will invest in IDLC rather than LankaBangla.

29 | P a g e
11. Appendix

Income Statement (IDLC)

Paticulars 2010 2011 2012 2013

Interest Income 3,085 3,942 4854 6216
Interest Paid on Deposit 1,822 2,364 3103 4138
Net Interest 1,263 1,578 1,751 2,078
Investment Income 526 (108) 58 53
Commision Exchange and
Brokerage 1,111 463 337 290
Other Opearting Income 147 227 257 341
Total Operating Income 3,047 2,160 2,403 2,762
Total Operating Expense 966 913 1,058 1,244
Profit Before Tax & Provision 2,081 1,247 1,345 1,518
Total Provision 125 30 93 193
PBT 1,956 1,217 1,252 1,325
Taxes 629 716 539 656
PAT 1,327 501 713 669

Revenue composition (IDLC)

Particular 2010 2011 2012 2013

Net Interest 41.4% 73.1% 72.9% 75.2%
Investment Income 17.3% -5.0% 2.4% 1.9%
Commision Exchange and Brokerage 36.5% 21.4% 14.0% 10.5%
Other Opearting Income 4.8% 10.5% 10.7% 12.3%
Total Operating Income 100.0% 100.0% 100.0% 100.0%

A|P age
 Growth (IDLC)

Paticulars 2010 2011 2012 2013

Interest Income 27.8% 23.1% 28.1%
Interest Paid on Deposit 29.8% 31.2% 33.4%
Net Interest 25.0% 11.0% 18.7%
Investment Income -120.5% -153.7% -8.6%
Commision Exchange and Brokerage -58.4% -27.2% -13.9%
Other Opearting Income 54.2% 13.1% 32.7%
Total Operating Income -29.1% 11.3% 14.9%
Total Operating Expense -5.5% 15.9% 17.6%
Profit Before Tax & Provision -40.1% 7.9% 12.9%
Total Provision -76.0% 210.0% 107.5%
PBT -37.8% 2.9% 5.8%
Taxes 13.8% -24.7% 21.7%
PAT -62.3% 42.4% -6.2%

CDR, Spread, ROA, ROE (IDLC)

Paticulars 2010 2011 2012 2013

Total loan 21,254 26,357 32,595 40,941
Total deposit 13,001 17,639 22,999 30,187
CDR 163.5% 149.4% 141.7% 135.6%
Loan growth 24.0% 23.7% 25.6%
Deposit growth 35.7% 30.4% 31.3%
Lending rate 14.5% 15.0% 14.9% 15.2%
Deposit rate 14.0% 13.4% 13.5% 13.7%
Spread 0.5% 1.6% 1.4% 1.5%
Total asset 26,930 31,165 37,783 50,430
ROA 4.9% 1.6% 1.9% 1.3%
Total Equity 3,690 3,981 4,694 5,363
ROE 36.0% 12.6% 15.2% 12.5%

B|P ag e
 Asset quality (IDLC)

Paticulars 2010 2011 2012 2013 2010 2011 2012 2013

Standard loan 20,285 24,610 29,982 37,649 95.5% 96.4% 96.9% 92.0%
SMA 358 336 311 480 1.7% 1.3% 1.0% 1.2%
Unclassified 20,643 24,946 30,293 38,129 97.2% 97.7% 97.9% 93.1%
Sub Standard 135 76 166 2,309 0.6% 0.3% 0.5% 5.6%
Doubtful 54 57 139 90 0.3% 0.2% 0.4% 0.2%
Bad/Loss 413 461 341 413 1.9% 1.8% 1.1% 1.0%
Classified 603 594 646 2,812 2.8% 2.3% 2.1% 6.9%
Total Loan 21,246 25,540 30,939 40,941 100.0% 100.0% 100.0% 100.0%
NPL(Classified Loan % of Total) 2.8% 2.3% 2.1% 6.9%
SMA(% of Total) 1.7% 1.3% 1.0% 1.2%
NPL+SMA 4.5% 3.6% 3.1% 8.0%

Base:
Standard loan 20285 24610 29982 37566 100.0% 100.0% 100.0% 99.8%
SMA 342 314 293 452 95.6% 93.5% 94.2% 94.2%

Unclassified 20627 24924 30275 38018 99.9% 99.9% 99.9% 99.7%

Sub Standard 106 55 113 77 78.3% 72.5% 68.1% 3.3%
Doubtful 45 49 101 72 82.9% 86.2% 72.7% 80.0%
Bad/Loss 386 445 296 360 93.4% 96.5% 86.8% 87.2%
Classified 537 549 510 509 89.0% 92.5% 78.9% 18.1%
Total Loan 21164 25473 30785 38527 99.6% 99.7% 99.5% 94.1%

Analysis of investment income (IDLC)

Paticulars 2010 2011 2012 2013 2010 2011 2012 2013

Gain from sale of shares 265 -46 49 45 50.3% -49.6% 84.5% 83.3%
Dividend on shares 20 227 9 9 3.8% 246.9% 15.5% 16.7%
Income from investment in bonds 5 4 1.0% 4.5% 0.0% 0.0%
IDLC securities Limited 236 -94 44.9% -101.7% 0.0% 0.0%
Consolidated Investment Income 526 92 58 54 100.0% 100.0% 100.0% 100.0%

Analysis of brokerage, exchange & commission income

Paticulars 2010 2011 2012 2013 2010 2011 2012 2013

Agency fees 1 1 2 2 0.1% 0.2% 0.6% 0.7%
Arrangement fees 2 2 20 41 0.2% 0.4% 5.9% 13.9%
Advisory fees 3 9 1 0.7% 2.6% 0.3%
Issue management fees 14 5 3 4 1.3% 1.1% 0.9% 1.4%
Portfolio management fees 201 100 88 53 18.1% 21.7% 25.8% 18.0%
Settlement fees 302 67 41 172 27.2% 14.5% 12.0% 58.3%
IDLE securities limited 589 207 173 4 53.1% 44.9% 50.7% 1.4%
IDLC investment limited 76 16.5% 0.0% 0.0%
Others income 5 18 1.5% 6.1%
Total investment income 1,109 461 341 295 100.0% 100.0% 100.0% 100.0%

C|P age
 Balance sheet (IDLC)

Particular 2010 2011 2012 2013

Cash 324 417 566 745
Balance with Other Banks & Financial Institution 3,029 2,133 3,275 7,111
Money at call 370 670 40
Investment 575 550 387 787
Loan & Advance 21,254 26,357 32,595 40,941
Fixed Assets 326 356 472 396
Other Asets 1,052 682 448 450
Non-Bank Assets
Total Assets 26,930 31,165 37,783 50,430
Liabilities & Equitites:
Liabilities:
Borrowing from other Banks & Financial institutions 4,657 4,566 4,334 8,828
Zero coupon bond
Deposits 13,001 17,639 22,999 30,187
Other Liabilities 5,582 4,979 5,758 6,052
Preference Shares/Bond
Total Liabilities 23,240 27,184 33,091 45,067
Shareholder's Equities:
Paidup 600 990 1,238 1,609
Share Premium 4 4 4 4
Statutory Reserve 562 723 841 1,003
General Reserve 811 811 811 811
Other Reserve
Dividend Equalization account 47 47 47 47
Asset revaluation reserve
Revaluation reserve of HTM securities
Bonus Shares
Cash Dividend
Retained Earning 1,666 1,406 1,753 1,889
Total Equity 3,690 3,981 4,694 5,363
Minority Interest
Total Liabilities & Equities 26,930 31,165 37,785 50,430

Deposit composition

Particular 2010 2011 2012 2013 2010 2011 2012 2013

Current accounts
Bills payable
Savings bank deposits
Fixed deposits 12,373 16,818 22,008 29,064 95.2% 95.4% 95.7% 96.3%
Others 628 811 991 1,124 4.8% 4.6% 4.3% 3.7%
Total 13,001 17,629 22,999 30,188 100.0% 100.0% 100.0% 100.0%

D|P a ge
 Loan composition (IDLC)

Particulars 2010 2011 2012 2013 2010 2011 2012 2013

Loans, advances and lease to customer group:
Real estate 4,920 6,570 7319 10322 23.2% 25.7% 22.5% 25.2%
Car loan 343 388 414 787 1.6% 1.5% 1.3% 1.9%
Personal loan 210 211 183 154 1.0% 0.8% 0.6% 0.4%
Loan against deposit 576 802 880 681 2.7% 3.1% 2.7% 1.7%
SME 4,249 6,390 8554 10839 20.0% 25.0% 26.2% 26.5%
Special program loan 640 406 1823 3040 3.0% 1.6% 5.6% 7.4%
Staf loan 68 102 183 163 0.3% 0.4% 0.6% 0.4%
Industrial loan 4,509 6,710 7916 10181 21.2% 26.3% 24.3% 24.9%
Other loans 5,731 3,960 5323 4774 27.0% 15.5% 16.3% 11.7%
Total loan 21,246 25,539 32,595 40,941 100.0% 100.0% 100.0% 100.0%
Industrial loan:
Agriculture 179 37 270 709 4.0% 0.6% 3.4% 7.0%
RMG 845 1,279 1,545 1,289 18.7% 19.1% 19.5% 12.7%
Food and beverage 389 1,132 873 913 8.6% 16.9% 11.0% 9.0%
Pharmacuticals 489 738 1,011 853 10.8% 11.0% 12.8% 8.4%
Leather and chemicals 22 148 280 76 0.5% 2.2% 3.5% 0.7%
Power , energy and engineering 592 888 756 987 13.1% 13.2% 9.6% 9.7%
Cement and ceramics 493 567 685 1,107 10.9% 8.5% 8.7% 10.9%
IT and services 960 1,239 1,308 3,413 21.3% 18.5% 16.5% 33.5%
Transport and communication 263 327 282 330 5.8% 4.9% 3.6% 3.2%
Trade and commerce
Shipping
Others 276 354 905 504 6.1% 5.3% 11.4% 5.0%
Total Industrial Loan 4,508 6,709 7,915 10,181 100.0% 100.0% 100.0% 100.0%
Geographical location-wise grouping:
Dhaka division 13,858 21,711 25,221 32,392 65.2% 85.0% 77.4% 79.1%
Chittagong division 6,895 2,517 4,473 4,146 32.5% 9.9% 13.7% 10.1%
Other divisions 493 1,311 2,901 4,403 2.3% 5.1% 8.9% 10.8%
Total loans 21,246 25,539 32,595 40,941 100.0% 100.0% 100.0% 100.0%

Investment composition (IDLC)

Particular 2010 2011 2012 2013 2010 2011 2012 2013

Treasury bill and bond
Investment in share:
Quoted 283 300 328 748 49.1% 54.6% 84.5% 95.0%
un-quoted 6 6 6 6 1.0% 1.1% 1.5% 0.8%
Investment in preference shares 144 66 54 33 25.0% 12.0% 13.9% 4.2%
Bonds 25 25 4.3% 4.5% 0.0% 0.0%
Investment ltd. 0.0% 0.0% 0.0% 0.0%
Securities ltd. 118 152 20.5% 27.7% 0.0% 0.0%
Total Investments 575 550 388 787 100.0% 100.0% 100.0% 100.0%

Market value of the share: 323 253 448 692

Quoted 317 247 442 686
Unquoted 6 6 6 6

Book value of the share: 289 306 334 754

Quoted 283 300 328 748
Unquoted 6 6 6 6

E|P a ge
 Income Statement (LankaBangla)

Paticulars 2010 2011 2012 2013

Interest Income 1,601 2,359 2678 3516
Interest Paid on Deposit 1,016 1,397 2148 2731
Net Interest 585 962 530 785
Investment Income 353 152 175 748
Commision Exchange and Brokerage 1,891 764 480 478
Other Opearting Income 331 136 205 207
Total Operating Income 3,160 2,014 1,390 2,218
Total Operating Expense 498 627 794 892
Profit Before Tax & Provision 2,662 1,387 596 1,326
Total Provision 331 83 86 328
PBT 2,331 1,304 510 998
Taxes 492 445 162 43
PAT 1,839 859 348 955

Revenue composition

Particular 2010 2011 2012 2013

Net Interest 18.5% 47.8% 38.1% 35.4%
Investment Income 11.2% 7.5% 12.6% 33.7%
Commision Exchange and Brokerage 59.8% 37.9% 34.5% 21.6%
Other Opearting Income 10.5% 6.8% 14.7% 9.3%
Total Operating Income 100.0% 100.0% 100.0% 100.0%

Growth

Paticulars 2010 2011 2012 2013

Interest Income 47.3% 13.5% 31.3%
Interest Paid on Deposit 37.5% 53.8% 27.1%
Net Interest 64.4% -44.9% 48.1%
Investment Income -56.9% 15.1% 327.4%
Commision Exchange and Brokerage -59.6% -37.2% -0.4%
Other Opearting Income -58.9% 50.7% 1.0%
Total Operating Income -36.3% -31.0% 59.6%
Total Operating Expense 25.9% 26.6% 12.3%
Profit Before Tax & Provision -47.9% -57.0% 122.5%
Total Provision -74.9% 3.6% 281.4%
PBT -44.1% -60.9% 95.7%
Taxes -9.6% -63.6% -73.5%

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 PAT -53.3% -59.5% 174.4%

CDR, Spread, ROA, ROE

Paticulars 2010 2011 2012 2013

Total loan 9,481 10,415 18,634 24,841
Total deposit 4,815 5,570 7,616 10,827
CDR 196.9% 187.0% 244.7% 229.4%
Loan growth 9.9% 78.9% 33.3%
Deposit growth 15.7% 36.7% 42.2%
Lending rate 16.9% 22.7% 14.4% 14.2%
Deposit rate 21.1% 25.1% 28.2% 25.2%
Spread -4.2% -2.4% -13.8% -11.1%
Total asset 13,721 15,904 25,339 32,065
ROA 13.4% 5.4% 1.4% 3.0%
Total Equity 1,223 1,829 6,667 7,030
ROE 150.4% 47.0% 5.2% 13.6%

Asset quality

Paticulars 2010 2011 2012 2013 2010 2011 2012 2013

Standard loan 10,105 9,326 17,360 23,279 93.8% 90.0% 93.2% 93.7%
SMA 105 556 751 631 1.0% 5.4% 4.0% 2.5%
Unclassified 10,210 9,882 18,111 23,910 94.8% 95.4% 97.2% 96.3%
Sub Standard 153 58 98 268 1.4% 0.6% 0.5% 1.1%
Doubtful 27 26 21 51 0.3% 0.3% 0.1% 0.2%
Bad/Loss 382 391 404 612 3.5% 3.8% 2.2% 2.5%
Classified 562 475 523 931 5.2% 4.6% 2.8% 3.7%
Total Loan 10,772 10,357 18,634 24,841 100.0% 100.0% 100.0% 100.0%
NPL(Classified Loan % of Total) 5.2% 4.6% 2.8% 3.7%
SMA(% of Total) 1.0% 5.4% 4.0% 2.5%
NPL+SMA 6.2% 10.0% 6.8% 6.3%

Base:
Standard loan

SMA
Unclassified
Sub Standard
Doubtful
Bad/Loss
Classified
Total Loan

Analysis of investment income

Paticulars 2010 2011 2012 2015E 2010 2011 2012 2013

Gain from sale of shares 298 12 19 84.7% 7.9% 10.8%
Dividend on shares 5 5 14 1.4% 3.3% 8.0%
Income from investment in bonds 49 135 143 13.9% 88.8% 81.3%
IDLC securities Limited
Consolidated Investment Income 352 152 176 100.0% 100.0% 100.0%

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 Analysis of brokerage, exchange & commission income (LankaBangla)

Paticulars 2010 2011 2012 2013 2010 2011 2012 2013

Agency fees
Arrangement fees
Advisory fees
Issue management fees
Portfolio management fees
Settlement fees
IDLE securities limited 1887 759 475 477 99.7% 99.2% 99.0% 99.8%
IDLC investment limited 6 6 5 1 0.3% 0.8% 1.0% 0.2%
Others income
Total investment income 1,893 765 480 478 100.0% 100.0% 100.0% 100.0%

Balance sheet

Particular 2010 2011 2012 2013

Cash 93 119 163 194
Balance with Other Banks & Financial Institution 1,766 2,023 1,514 2,351
Money at call
Investment 2,300 3,569 3,395 3,516
Loan & Advance 9,472 10,438 18,634 24,841
Fixed Assets 195 189 238 291
Other Asets 5,497 6,042 1,395 872
Non-Bank Assets
Total Assets 19,323 22,380 25,339 32,065
Liabilities & Equitites:
Liabilities:
Borrowing from other Banks & Financial institutions 6,351 8,456 8,837 11,597
Zero coupon bond
Deposits 4,560 5,310 7,616 10,827
Other Liabilities 3,278 2,522 2,219 2,611
Preference Shares/Bond
Total Liabilities 14,189 16,288 18,672 25,035
Shareholder's Equities:
Paidup 531 824 1,894 2,083
Share Premium 1,091 1,091 1,091 1,091
Statutory Reserve 222 314 562 651
General Reserve 35 39 43 46
Other Reserve
Dividend Equalization account
Asset revaluation reserve
Revaluation reserve of HTM securities 453 453 449 69
Bonus Shares
Cash Dividend
Retained Earning 2,459 2,999 2,435 2,900
Total Equity 5,134 6,092 6,667 7,030
Minority Interest 343 372 193 190
Total Liabilities & Equities 19,323 22,380 25,339 32,065

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 Deposit composition

Particular 2010 2011 2012 2013 2010 2011 2012 2013

Current accounts
Bills payable
Savings bank deposits
Fixed deposits 4,815 5,570 7,616 10,827
Others
Total 4,815 5,570 7,616 10,827

Loan composition

Particulars 2010 2011 2012 2013 2010 2011 2012 2013

Loans, advances and lease to customer group:
Real estate 1,112 1,504 969 1312 11.7% 14.4% 5.2% 5.3%
Car loan 129 247 477 851 1.4% 2.4% 2.6% 3.4%
Personal loan 14 49 371 0.0% 0.1% 0.3% 1.5%
Loan against deposit 173 132 0.0% 0.0% 0.9% 0.5%
SME 183 325 245 300 1.9% 3.1% 1.3% 1.2%
Special program loan 761 724 0.0% 0.0% 4.1% 2.9%
Staf loan 6 29 0.0% 0.0% 0.0% 0.1%
Industrial loan 3,153 3,274 6602 11003 33.3% 31.4% 35.4% 44.3%
Other loans 4,905 5,052 9352 10120 51.7% 48.5% 50.2% 40.7%
Total loan 9,482 10,416 18,634 24,842 100.0% 100.0% 100.0% 100.0%
Industrial loan:
Agriculture 545 755 0.0% 0.0% 2.9% 3.1%
RMG 8 322 1,119 2,424 0.1% 3.1% 6.1% 9.9%
Food and beverage 1 400 143 508 0.0% 3.8% 0.8% 2.1%
Pharmacuticals 418 774 0.0% 0.0% 2.3% 3.2%
Leather and chemicals 70 0.0% 0.0% 0.0% 0.3%
Power , energy and engineering 1 56 1,311 2,622 0.0% 0.5% 7.1% 10.7%
Cement and ceramics 1,112 1,504 1,730 2,160 11.7% 14.4% 9.4% 8.8%
IT and services 409 0.0% 0.0% 0.0% 1.7%
Transport and communication 4 287 214 367 0.0% 2.8% 1.2% 1.5%
Trade and commerce 628 702 0.0% 0.0% 3.4% 2.9%
Shipping 282 575 0.0% 0.0% 1.5% 2.4%
Others 8,356 7,845 12,102 13,063 88.1% 75.3% 65.4% 53.5%
Total Industrial Loan 9,482 10,414 18,492 24,429 100.0% 100.0% 100.0% 100.0%
Geographical location-wise grouping:
Dhaka division 6,750 8,398 15,184 18,969 71.2% 80.6% 81.5% 76.4%
Chittagong division 1,425 1,959 3,396 5,706 15.0% 18.8% 18.2% 23.0%
Other divisions 1,307 57 54 166 13.8% 0.5% 0.3% 0.7%
Total loans 9,482 10,414 18,634 24,841 100.0% 100.0% 100.0% 100.0%

Investment composition

Particular 2010 2011 2012 2013 2010 2011 2012 2013

Treasury bill and bond 1,346 1,802 1,109 1,109 71.7% 75.2% 32.7% 30.7%
Investment in share:
Quoted 496 560 2,076 2,023 26.4% 23.4% 61.1% 56.0%
un-quoted 36 33 210 483 1.9% 1.4% 6.2% 13.4%
Investment in preference shares
Bonds
Investment ltd.
Securities ltd.
Total Investments 1,878 2,395 3,395 3,615 100.0% 100.0% 100.0% 100.0%
Market value of the share:
Quoted
Unquoted

Book value of the share: 532 593 2,286 2,506

Quoted 496 560 2,076 2,023
Unquoted 36 33 210 483

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12. References
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Basu, S. (1977). Investment Performance of Common Stocks in Relation to their Price-Earnings

Rations: A Test of the Efficient Market Hypothesis. Journal of Finance 12, 129-156.

Bhandari, L. (1988). Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence.
Journal of Finance 43, 507-528.

Black, F., Jensen, M., & Scholes, M. (1972). The Capital Asset Pricing Model: Some Empirical Tests. M.
Jensen, ed., Studies in the theory of capital markets.

Brounen, D., Abe de Jong, & Koedijk, K. (2004). Corporate Finance in Europe Confronting Theory with
Practice. Financial Management 33, 71-101.

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Fama, E., & French, K. (1996). Multifactor Explanations of Asset. Journal of Finance 51, 55-84.

Fama, E., & MacBeth, J. (1973). Risk, Return and Equilibrium: Empirical Tests. Journal of Political
Economy 81, 607-636.

Graham, J., & Harvey, C. (2001). The Theory and Practice of Corporate Finance: Evidence from the
Field. Journal of Financial Economics 60, 187-243.

Litner, J. (1965). The Valuation of Risk Assets and the Selection of Risky. Review of Economics, 13-37.

Sharpe, W. (1964). Capital Asset Prices: A Theory of Market Equilibrium. Journal of Finance 19, 425-
442.

Annual report, IDLC Finance Limited, (2013). web: www.idlc.com, viewed on 2nd december, 2014.

Annual report, LankaBangla Finance Limited, (2013). web: www.lankabangla.com, viewed on 2nd
december, 2014.

CFA Institute Investment Series. International Financial Statement Analysis, Second EditionThomas R.
Robinson, CFA | Elaine Henry, CFA | Wendy L. Pirie, CFA | Michael A. Broihahn, CFA

Financial reporting and Analysis, CFA Level 1 Curriculam, web:www.cfainstitute.com

Investopedia website. web: www.investopedia.com, viewed on 2nd Dec, 2014.

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