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Internship Report

                             On

“The Role of Fundamental Determinants on Company Financial
      Performance: The Case of LankaBangla Finance.”




                         Prepared By
                    S. M. Galibur Rahman
                         Id: 07882710
                           2nd Batch
                    Department of Finance
                     Jagannath University
                  Faculty of Business Studies
Submitted To:
Department of Finance

Jagannath University, Dhaka




                              Under the Supervision of
                              Md. Sogir Hossain Khandoker
                                   Associate Professor
                                Department of Finance
                                  Jagannath University




                                                                  Submitted By:

                                                            S. M. Galibur Rahman
                                                                      ID: 07882703

                                                                 Session: 2007-2008
DECLARATION OF SUPERVISOR




This is to certify that the internship on “The Role of Fundamental Determinants on Company
Financial Performance: The Case of LankaBangla Finance.” has been submitted for the award of
the degree of Bachelor of Business Administration (BBA) from Department of Finance,
htannagaJ University, carried out by S. M. Galibur Rahman bearing ID.07882710 under my
supervision. To the best of my Knowledge and as per his declaration, any part of this report has
not been submitted for any degree, diploma or certificate.




He is permitted to submit the Internship Report.




------------------------------------------

Md. Sogir Hossain Khandoker
Associate Professor
Department of Finance
Jagannath University




                                               [i]
DECLARATION OF STUDENT




I, S. M. Galibur Rahman, the student of Bachelor of Business Administration (BBA) 2nd Batch
                                                                                        P   P




bearing ID: 07882710 from Department of Finance, htannagaJ University would like to somberly
declare here that an internship report on “The Role of Fundamental Determinants on Company
Financial Performance: The Case of LankaBangla Finance.” has been authentically prepared by
me. While preparing this internship report, I didn’t breach any copyright act intentionally. I am
further declaring that, I did not submit this report anywhere for awarding any degree, diploma or
certificate.




_______________________

S. M. Galibur Rahman

Id no: 07882710

Batch no.: 2nd
            P   P




Department of Finance

Jagannath University




                                               [ii]
LETTER OF TRANSMITTAL

November 5, 2012

Md. Sogir Hossain Khandoker
Associate Professor
Department of Finance
Jagannath University, Dhaka

Subject: Submission of Internship Report.

Sir,

It is my pleasure to submit the internship report, which is done as a part of academic curriculum,
to you for your kind evaluation. The report is prepared on“The Role of Fundamental
Determinants on Company Financial Performance: The Case of Lanka Bangla Finance”.

I have put my best effort in preparing this report and to make it a worthy one. Each aspect of the
problem is considered and studied as required.

If any confusion arises or any further explanation is needed, I will be readily available to explain
the matter to you, as the situation required.



Sincerely yours,




______________________

S. M. Galibur Rahman

ID: 07882710

2nd Batch

Session: 2007-08

Email: galibju@gmail.com




                                                [iii]
ACKNOWLEDGEMENT


First and foremost, I would like to pay my gratitude to the almighty Allah, the most Merciful, the
Beneficent, for blessing me with good health and tenacity of mind to complete the requirements
for the degree. I am also grateful to my parents who provided me with the basic necessities of
life since my early childhood.

I earnestly thank Md. Sogir Hossain Khandoker, Associate Professor, Department of Finance,
Jagannath University for acting as a mentor round-the-clock and showing me the right direction
whenever I started going off-track.

Nevertheless, I must express my gratitude to the following people for being so accommodative
that I never felt left-out during my whole intern journey:

1. Mr. Wali Ul Islam, Chief Executive Officer, LBSL

2. Mr. Md. Ashaduzaman Riyadh, Research Analyst & In-Charge, Research & Analysis
Department, LBSL

3. Md. Tareq Ibrahim, Research Analyst, Research & Analysis Department, LBSL

4. Md. Mahmudul Hasan Khan, In-Charge, Human Resource Department, LBSL



Finally, I thank all other LBSL staffs whose cooperation I found to be really kind and supportive.




                                               [iv]
ABSTRACT


This project examines the determinants of the profitability of firms in the Non Banking Financial
Institution (NBFIs) industry of Bangladesh. Profitability of a financial institution basically
depends on its some key financial determinants. Specially operating efficiency is main
influencing factor which is calculated through operating income. Besides it capital Structure
composite of equity and liability, operating expense, total asset significantly affect the
profitability of any NBFI company. In addition term deposit also affects the profitability though
that is statistically not significant. My research is an attempt to find out the key determinants
variable and their level of influence over net profit.


Here in this report there are 5 chapters. In 1st chapter report origin, data sources, methodology,
limitation etc. have been given. In 2nd chapter the institution, where I did my internee has been
discussed. Then literature review of different research has been given in chapter 3. And chapter 4
is the main the part where I put both financial and statistical analysis have been given. And then
lastly findings and recommendation have been given in last and final chapter.

In case of financial analysis I did two types of analysis. Firstly company analysis where I took
LankaBangla Finance Ltd. data of last 4 years to do my company analysis. And then I took
whole NBFIs industry’s last 4 years data to do my industry analysis.

And then for statistical Analysis, different Statistical techniques of simple and multiple
regressions have been used to determine the relationships between variables. And before doing
regression analysis I did normality distribution test by Run test, and K-W test for randomness.
Also I did correlation analysis between dependent and different independent variables.

As the result suggest operating revenue has the most significant impact on the net profit of any
company so company should increase is operational efficiency. And also operational expense
negatively affects the net profit. So it should be controlled effectively. And all other fundamental
determinants significantly affect the company net profit. Only the term deposit impact is
statistically insignificant.




                                                [v]
Table of Contents


Topic                                               Page

CHAPTER 1: INTRODUCTION                             01-03
1.1 Origin Of The Report                             01
1.2 Objectives                                       01
1.3 Scope Of The Report                              02
1.4 Sources Of Information                           02
1.5 Methodology                                      03
1.6 Data Analysis & Presentation Technique           03
1.6 Limitation                                       03

CHAPTER 2: LITERATURE REVIEW                        04-06
2.1 Literature Review                               04-06
2.2 Research Gap                                     06

CHAPTER 3: INTRODUCTION TO LANKABANGLA SECURITIES   07-19
3.1   Company Profile with its History              07-08
3.2   Key Milestone                                  09
3.3   LBS Organogram                                 10
3.4   LBS Philosophy                                 11
3.5   Strategic Priorities                           12
3.6   Unique Key Proposition                         12
3.7   Services of LBS                               13-14
3.8   Products of LBS                               14-18
3.9   Financial Highlight of LBS                     19

CHAPTER 4: METHODOLOGY & ANALYSIS                   20-88

4.1 Company Analysis (LBFL)                         20-32
    4.1.1 Background of LBFL                         20
    4.1.2 Shareholding Pattern Analysis              21
    4.1.3 Business Growth Analysis                  22-23
    4.1.4 Detailed Analysis of Key Financials       24-30
    4.1.5 Financial Statement Analysis               31
    4.1.6 Common Size Statement                      32
4.2   Industry Analysis (NBFIs)                                 33-47
       4.2.1 Industry Snap                                      33-34
       4.2.2 Market Capitalization of NBFI                       35
       4.2.3 Composition of Income                               35
       4.2.4 Income Growth                                       36
       4.2.5 Industry Growth                                    37-38
       4.2.6 Ratio of NBFIs Industry                             39
       4.2.7 Key Information of NBFI Industry                   40-41
       4.2.8 CAGR of all Company under NBFI Industry            42-42
       4.2.9 BETA of all Company under NBFI Industry             44
       4.2.10 Common Size Statement of NBFI Industry            45-46
       4.2.11 Cost of Fund of all Company under NBFI Industry    47

4.3 Statistical Research part                                   48-88
      4.3.1 Descriptive Statistics                               51
      4.3.2 Graphical Representation of Data & Frequency        52-62
      4.3.3 Test of Randomness of all variable (Run Test)       63-66
      4.3.4 Goodness of Fit test (K-W Test)                     67-70
      4.3.5 Mean Test Analysis (T-Test)                         71-73
      4.3.6 Correlation Test Analysis                           74-77
      4.3.7 Multiple Regression Model (Including F test)        78-88
                    Final Multiple Regression Model              88

CHAPTER 5: FINDINGS & CONCLUSION                                89-91
5.1 Key Findings                                                 89
5.2 Recommendation                                               90
5.3 Conclusion                                                   91




BIBLIOGRAPHY                                                    92 - 93
TABLE NO                             TABLE DESCRIPTION                  PAGE NO

                      Chapter 3: Introduction to Lanka Bangla Securities

Table 1                Company Glance (LBS)                                  07

Table 2                Financial Highlight (LBS)                             19

                             Chapter 4: Methodology & Analysis

Table 3                Company Snapshot (LBFL)                               20

Table 4                Share Outstanding Pattern of LBFL                     21

Table 5                Sponsor Details of LBFL                               21

Table 6                Growth Statistics                                     22
Table 7                Industry Snap (NBFI)                                  33
Table 8                Industry Growth Statistics (NBFI)                     37
Table 9                Industry Information (NBFI)                          40-41

Table 10               CAGR of all Company under NBFI Industry              42-43
Table 11               BETA of all Company under NBFI Industry               44

Table 12               Cost of Fund of all Company under NBFI Industry       47

Table 13               Descriptive Statistics of all Variable                51

Table 14-Table 20      Run Test of all Variable                             63-66

Table 21 – Table 27    K-W Test of all Variable                             67-70

Table 28               Mean Test of all Variable                             71

Table 29 – Table 34    Correlation Test                                     74-77

Table 35 – Table 36    Multiple Regression Model Analysis                   78-79

Table 37- Table 38     F-test, T-Test                                       80-81

Table 39               Multiple Regression Model at a glance                 88
Chapter # 1
Introduction
1.1. ORIGIN OF THE REPORT


This report is prepared to fulfill the requirement for the completion of the Bachelor of
Business Administration (BBA), degree of the Jagannath University. The internship program is
carried on to provide the students an on the job exposure and to match up the theoretical
concepts with the real life situation. I was placed at LankaBangla Securities, Bangladesh for the
internship program under the guidance of Moh. Sogir Hossain Khandoker, my faculty advisor. I
have joined LankaBangla Finance Limited, Bangladesh for a period of 12 weeks starting from
September 10, 2012. As a requirement of the completion of the internship program I need to
submit the report, which includes an overview of the organization and both statistical and
financial research.




                   1.2. OBJECTIVE OF THE STUDY

The objective of the study may be viewed as:

   General objective
   Specific objective

             1. 2. 1 GENERAL OBJECTIVES


This internship report is prepared primarily to fulfill the Bachelor of Business Administration
degree requirement under Department of Finance, Jagannath University and get an overall idea
of NBFIs sectors and its activity specially the performance of Lanka Bangla Finance.




             1. 2. 2 SPECIFIC OBJECTIVES


More specifically, this study entails the following aspects:
  To make fundamental company analysis
  To analyze the profitability of LankaBangla Finance Limited with the help of different
  statistical tools
  To test the predetermined hypothesis relating to the financial performances of LankaBangla
  Finance Limited, only regarding profitability
  To make fundamental NBFIs industry analysis
  Impact of Industry Performance on Lanka Bangla Finance.



                                                                                      1|P a ge
1.3. SCOPE OF THE REPORT


The study would focus on the following areas.

 Relationship of Net Profit with its fundamental determinants.

 Company Analysis (LBFL) and whole financial industry,

 Brief overview of Lanka Bangla Securities..

Each of the above areas would be critically analyzed in order to determine the regression model
and to build predetermined hypothesis.



                          1.4. SOURCES OF DATA
Information collected to furnish this report is both from primary and secondary in nature.

           1.4.1   PRIMARY SOURCES OF DATA


The primary data of this report were collected through:

    Direct interview & Conversation with the research analyst of the Research Department.
    Practical experiences obtained from the corporate office of LBSL
    Expert’s opinion.
    Official records.


          1.4.2    SECONDARY SOURCES OF DATA



I have gathered the secondary data via following sources:

    Annual report of Lanka Bangla Finance ltd.
    Printed outlines and documentation supplied by Lanka Bangla Finance ltd.
    Annual Financial Statement of last 4 years of different NBFIs.
    Analysis report of LBSL research and analysis department.
    Website of Lankabangla Finance (http://www.lankabangla.com/).


                                                                                        2|P a ge
1.5. METHODOLOGY
The data for this study was gathered from the annual financial statements published by the
LankaBangla Finance Limited in some selected internal magazines to accomplish the aforesaid
objectives. The Quarterly and annual data for the selected NBFI during 2008 to 2012 are used in
order to assess the profitability of the bank. Any progress of LankaBangla Finance Limited
thereafter is thus out of the scope of the report. Help of other sources like annual report,
magazines, brochures, journals, newspapers, websites, etc. have also been chosen whenever
found necessary. This paper is based on secondary data collection.

In processing the data, various methods of conventional statistics were deployed. Frequency
distribution, measures of central tendency and dispersion, time series analysis, simple correlation
and multiple regression analysis, correlation matrix and ANOVA in some cases calculated data
are presented in graph to give the reader a better understanding of financial components.

Kearl-Pearson correlation coefficient also used to investigate the correlation between the
variables at 5% level of significance according to the SPSS software package. Microsoft excel
was also used to produce some graphs and charts.



                1.6. DATA ANALYSIS & PRESENTATION
                            TECHNIQUE

In order to analyze gathered data, I plan to use statistical software like SPSS that will run z-test,
t-test, regression and such. Besides SPSS I will use MS-Excel to generate charts and graph of
different ratio analysis. The data will be presented through graphs for better visual
understanding.


                                       1.7. LIMITATION


I have faced some usual constrictions throughout my internship program to some extent that I are
presented as follows:
    Primary data is always hard to work on because of authenticity.
    Time is another hindrance to prepare a quality report.
    Power failure is another main restraint to prepare this report
    And scarcity of information is always a common hindrance to prepare any types of
     report.

                                                                                            3|P a ge
Chapter # 2
Literature Review
2.1. LITREARATURE REVIEW


To get an insight of profitability determinants, several studies have been executed up to till date.
But the fact suggests that, most of the researches have been conducted on banking industry. So,
the evident with regard to profitability is scarce in the NBFI sector.

FadzlanSufian, and RoyfaizalRazali Chong (2008) examined the determinants of Philippines
banks profitability during the period 1990–2005. Their empirical findings suggest that all the
bank-specific determinant variables have a statistically significantly impact on bank profitability.
They also found that size, credit risk, and expense preference behavior are negatively related to
banks' profitability, while non-interest income and capitalization have a positive impact.
According to their analysis inflation has a negative impact on bank profitability, while the impact
of economic growth, money supply, and stock market capitalization have not significantly
explained the variations in the profitability of the Philippines banks.

Shah-Noor Rahman and Tazrina Farah (2012), in their research paper on “Non Bank
Financial Institution’s Profitability Indicators: Evidence from Bangladesh” examined the
indicators of the profitability of firms in the Non Banking Financial Institution (NBFIs) industry
of Bangladesh. Their finding was profitability indicator variables have impact upon net profit.
And there variable was Net profit as dependent variable and Current Asset, Financial Expense,
Long term liability, Interest Income, and Operating revenue as independent variable. According
to their report among the independent variables the Liquidity Condition and Operating Efficiency
exert significant influence on Profitability of Non Bank sector in Bangladesh.


Fadzlan Sufian (2009) in his research paper title “Determinants of non-bank financial
institutions' profitability: empirical evidence from Malaysia” analyzed the determinants of
profitability on NBFIs in developed country. He found that “Malaysian NBFIs with a higher risk
exhibits lower profitability level. On the other hand, the large Malaysian NBFIs with high
operational expenses exhibits higher profitability level, thus supporting the expense preference
behavior hypothesis”. He also suggested that specialization has no significant relationship with
Malaysian NBFIs profitability.

James W. Scott and José Carlos Arias (2011) in their study” Banking profitability
determinants” surveyed top five bank holding companies in the United and concluded that
profitability determinants for the banking industry include positive relationship between the
return of equity and capital to asset ratio as well as the annual percentage changes in the external
per capita income. There was also a virtual consensus identified concerning the effect that the
internal factor of size as measured by an organization’s total assets had on its ability to compete
more effectively, even in times of economic downturns.


                                                                                         4|P a ge
Christos K. Staikouras & Geoffrey E. Wood (2011) examined the factors that that influence
the profitability of financial institution in their research paper “The Determinants of European
Bank Profitability”. Their main finding was “the rate of return earned by a financial institution is
affected by numerous factors. These factors include elements internal to each financial institution
and several important external forces shaping earnings performance. The type of explanation
would determine possible policy implications and ought to be taken seriously”. Their paper
quantifies how internal determinants (“within effects” changes) and external factors (“dynamic
reallocation” effects) contribute to the performance of the EU banking industry as a whole in
1994-1998.

Balchandher K. Guru, J. Staunton & B. Shanmugam (2009) in this research paper
“Determinants of commercial bank profitability in Malaysia” examined to what extent are the
profitability performance disparities due to variations in management controllable internal
factors and external factors. He took net profit as his dependent variable and Asset Composition,
Capital, Deposit Composition, Expenses Management, Liquidity, Firm Size, Inflation Rate,
Market Growth, Market Interest, Market Share and Regulation as his independent variable. He
suggested that all variable has significant relationship with net profit. And also he added that in
order to increase profitability the Expense Management should be proper as this variable
significance is very high.

Demirguc-Kunt & Huizinga (2001) and Bikker and Hu (2002) find a negative relationship
between stock market capitalization and banks’ profitability, it means that equity and bank
financing acts as substitutes rather than complements. In case of the industry-specific factors, the
Structure- Conduct-Performance premise point out that growing market power enhances the
profitability (income) of banks.

Antonina Davydenko(2011) surveyed about 3236 bank-quarter observations and concluded that
Ukrainian banks suffer from low quality of loans and do not manage to extract considerable
profits from the growing volume of deposits. Despite low profits from the core banking activities

James W. Scott and José Carlos Arias (2011) in their study” Banking profitability
determinants” surveyed top five bank holding companies in the United and concluded that
profitability determinants for the banking industry include positive relationship between the
return of equity and capital to asset ratio as well as the annual percentage changes in the external
per capita income. There was also a virtual consensus identified concerning the effect that the
internal factor of size as measured by an organization’s total assets had on its ability to compete
more effectively, even in times of economic downturns.

Nadim Jahangir', Shubhankar Shill and Md. AmlanJahidHaque(2007) surveyed 15
commercial banks in Bangladesh and found that market concentration and bank risk do little to
explain bank return on equity, whereas bank market size is the only variable providing an
explanation for banks return on equity in the context of Bangladesh. They found that market size

                                                                                         5|P a ge
and bank's return on equity proved to have strong relationship. Also, a strong and significant
relationship was identified between market size and bank's return on equity. It suggests that
capital adequacy is important for a bank to be profitable.




                                2.2 RESEARCH GAP


After reading several research papers I found that no one has yet made any research paper on
effect of internal determinants on company’s profitability in Bangladesh. In fulfilling that gap
my research paper will play a significant role. As my research paper deals with role of
fundamental determinants on company performance, so everyone will get an overall idea about
how the fundamental determinants affect the company’s profitability. It never can be taken as the
conclusion rather as the beginning of research topic.




                                                                                       6|P a ge
Chapter # 3
Introduction to
3.1 COMPANY PROFILE WITH
                              ITS HISTORY



                                   Company At a Glance

                     1 Date Of Corporation             3rd July, 1997

                     2 Year of Commencement            3rd July, 1997

                     3 Registration No                 C 33276(22)/97

                     4 Authorized Capital              Tk. 1,000 million
                       (Pre IPO)
                     5 Paid up Capital                 Tk. 550 million

                     6 Financial Year                  January-
                                                       December

Table #1: Company Glance


LankaBangla Securities Limited (LBSL) is a subsidiary of LankaBangla Finance Limited and a
leading equity brokerage house in the country with a diverse clientele of institutions, high net
worth individuals, foreign funds and retail investors. The company commenced stock broking
activities in 1997 and has over time become the largest stock broking company in the country
having developed a strong team of highly skilled and experienced professionals.

LBSL (Formerly known as Vanik Bangladesh Securities Ltd) started its stock broking business
in 1997 trading on the Chittagong Stock Exchange (CSE) Ltd, while commencing trading on the
Dhaka Stock Exchange (DSE) in1998. The company was renamed LankaBangla Securities with
effect from 27 April 2005 following a restructuring of the company.

Its scrupulous investment in time and labor to create a better investment pathway for investor in
the Bangladesh Stock Market has made it become the leading equity brokerage house in the
country. It began as Vanik Bangladesh Securities Ltd in 1997 with its activities confined only
within the Chittagong Stock Exchange (CSE) Ltd.

A year later, it made a step ahead and introduced itselves to the Dhaka Stock Exchange (DSE). It
rebranded itself as LankaBangla Securities Ltd. in 2005 following a restructuring of the
company. At LankaBangla Securities Limited, it specializes in developing the country’s most
efficient stock brokerage workforce with unmatched skills and consummate perfectionism. Also,

                                                                                      7|P a ge
whichever corner of Bangladesh customers are in, it has got everyone covered as customer can
find its eleven branches spread in the leading cities and towns countrywide.

It is the leader in terms of customer transactions. That’s why it was again crowned as the largest
brokerage house in terms of transaction value for the 6th consecutive time in DSE and 7th
consecutive time in CSE in 2011. Quality, convenience, and reliability are certain things that it
provides its customer at the highest level. Customer can expect from his broker and that is the
key to such a strong network of key clients all over the world. Furthermore, the local and
international recognitions from financial institutions, custodian banks, corporations, international
fund managers, and other fellow brokers for our professionalism has laid the foundation of its
future growth and further success.

Its ability to meet the demands considering every client’s time horizon, goals, and risk tolerance
has made its settle relations with thousands of retail and institutional clients all over the globe. It
is a 90.91% owned subsidiary of LankaBangla Finance Limited (LBFL) which is one of the
leading listed non banking financial institutions in Bangladesh engaged in Leasing, Credit Card
Services, Merchant Banking, Corporate Financing, and Financial Consultancy. LBFL is owned
by a group of highly successful local business entrepreneurs of Bangladesh, the Sampath Bank
Limited of Sri Lanka, the One Bank Limited of Bangladesh, and the general public. With all
these on the back, our house LBSL is undoubtedly a global one which knows cusotomers
preferences and guarantees cusotomer the most comfortable investment environment while
anyone choose to invest in Bangladesh.




                                                                                            8|P a ge
3.2 KEY MILESTONE




1997   • Started Stock Broking Business through CSE


       • Started Stock Broking Business through DSE
1998


       • Renamed as LBSL from VBSL with effect from 27th April
2005


       • Inaugurate Integrated Back Office Software System first ever in Bangladesh
2008     Capital Market in 2008


       • Tagged with BDJOBS for stock market training as a part of CSR
       • Achieved “BEST IT USE AWARD-2009” from Bangladesh Association of
2009     Software & Information Services (BASIS)
       • Converted from Private Limited to Public Limited Company
       • Taken Over Directorship of MIDAS Financing Limited
       • Tagged with BDJOBS for stock market training as a part of CSR


2010   • Sponsor Shareholding of Financial Excellence Limited


       • Secured 1st position in DSE in the last consecutive five years and CSE in the last
2009     consecutive six years


2011   • Increased paid up capital

       • Introducing a full-fledged FinancialWeb Portal & OrderManagement Systemfor
2012     the first timein Bangladesh




                                                                                     9|P a ge
3.3 LBSL ORGANOGRAM




                      10 | P a g e
3.4 LBSL PHILOSOPHY


Vision of LBSL:

Growing together with our stakeholders by implementing the most comprehensive, efficient
and state of the art brokerage platform to maintain the excellence and maximize the wealth of
shareholders.



Mission of LBSL:

      Providing Quality Product and Services
      Ensuring the Use of State of the Art Technology
      Being the Hub of International Investment
      Demonstrating Comprehensive Integrity with Market
      Maintaining Corporate Governance
      Promoting Research and Analysis
      Involving in Continuous Process Improvement



Goals of LBSL:

“To lead by example through a commitment that empowers the organization at every level to
strive for the highest levels of quality, customer care and stakeholder value. To be the most
sought after facilitator in creating wealth. To optimize the value of being our Customer,
Shareholder or Employee. To establish strong regional presence”




                                                                                  11 | P a g e
3.5 STRATEGIC PRIORITIES


LBSL has some strategic priorities which it believes to be maintained in operating the
organization. These are

   Offloading share to the equity market as soon as possible.
   Expand its business all over the country by opening new branches.
   Diversifying operation through strategic investment in other organization and in bond
   market.
   Further improvement of asset quality.
   Smooth penetration in the capital market.
   Updating back office software as well as develop new software to support internet trading
   and swift data processing.
   Arranging different business promotion program such as road show in side as well as outside
   of the country, international capital market investor conference etc.
   Train up employees through attending in national and international training program to
   enrich their competence.
   To become cost efficient organization.
   Increase intrinsic value of the company by strengthening internal controls through
   installation of clearly laid down policies, procedures and processes.
   Strengthen risk management.
   Increased and focused Corporate Social Responsibility (CSR).


                          3.6 UNIQUE KEY PROPOSITION
                                    OF LBSL

   Exceptional quality and professionalism in its service offering to clients
   An experienced and dedicated senior management team
   A trained and professional sales team
   A competent equity market research unit
   The widest network of local branches (Dhaka, Chittagong & Sylhet)
   Ability to provide a one stop service offering at all its branches
   State of the art technology utilized in trade execution and back office and reporting systems
   International affiliation

                                                                                      12 | P a g e
3.7 SERVICES OF LBSL


LankaBangla Securities Limited offers various kinds of services all over the country, which
includes the followings:

1. Brokerage Services
      “Trade Execution Service” for clients in Dhaka and Chittagong Stock Exchange
      Trading of portfolio accounts maintained with the Merchant Banking Division of
      LankaBangla Finance Limited and IDLC Finance Ltd.
       Custodial Services provided for clients for safe custody of securities.
      Extend credit facilities through Margin Trading.


2.   Trading Facility through NITA (Non Resident Investor’s Taka Account)

LBSL has successfully launched services of NITA Trading through which Non-Resident
Bangladeshis (NRBs) are able to transact under Non-resident Investor's Taka Account (NITA).
The Company is also dedicated to use extensive recourses to offer new products and services to
the existing clients and also to attract new clients. Our choice of an object oriented approach and
using the latest technology has given us the flexibility to extend our product & service range as
well as ensuring performance, security and scalability.

3.   Internet Trading

Since CSE has introduced Internet Trading System in Bangladesh and simultaneously LBSL has
adopted this trading facilities for its distance clients for trade execution. In addition our steps
toward internet trading through CSE TWS not only enriching the door of potential clienteles but
also ensuring our participation in the development of Bangladesh Capital Market.


4.   CDBL Services

       Full Depository Participant (DP) Service.
       BO (Beneficial Owner) account opening and maintenance.
       Dematerialization and Re-materialization of securities.
       Transfers and transmission of securities through CDBL.


                                                                                       13 | P a g e
5.   Research Services:

LankaBangla Securities Ltd is supported by a competent research team that provides services
among others included:

        Economic, market, sector and listed company research reports.
        A daily stock market report and market commentary.
        A monthly publication on the equity market.
        Customized economic and capital market related research.
        Designing of training & development sessions related to the capital markets.


6.   Trade Execution Service:

LankaBangla Securities Limited provides Trade Execution Service to the clients in the both
Dhaka Stock Exchanges & Chittagong Stock Exchanges.




                          3.8 PRODUCTSS OF LBSL




1. CTA (Cash Trading Account)

Definition:

CTA (Cash Trading Account) is a facility that is provided to clients for trading with their own
finance.

Features:

      Orders can be received through email, telephone or fax.
      Trade execution confirmation is provided to client.
      Regular emailing of Portfolio Statement.

Eligibility:

      Any citizen of Bangladesh.
      Age must be above eighteen.



                                                                                       14 | P a g e
Document Requirement:

       Fo r Inst it ut ional Trading Acco unt :

                     Board Resolution.
                     Memorandum and Articles of association.
                     Specimen signature of account operators.
                     Letter of Authorization.
                     A valid photo ID of the Managing Director.
                     Valid photo ID of Account Operator(s).



       For Ind ividual Trad ing Account :

                     Acco unt Opening Form and S ignat ure Card duly filled up.
                     Valid passpo rt or nat ional ID card photocopy.
                     Two co pies passport size photograph of account holder.
                     One copy passport size photo graph o f aut horized p erso n ( if
                      any).



2. FTA(Foreign Trading Account)

Definition:

FTA ( Fo reign Trading Account ) is a facilit y t hat is provided to t he foreig n
inst it ut io nal client s, compr ising o f d ifferent fu nds, int ernat io nal bro kers, bank s
et c, who are int erest ed in t rading Bangladeshi secur it ies.

Features:

    Dedicated booth for foreign trades with access to Bloomberg terminal on the trading
     desk.
    Orders can be received through email, Bloomberg EMSX, IB, fax.
    Trade execution confirmation can be provided through email, Bloomberg EMSX, IB, fax
     (according to client preference).
    Settlement done through DvP – RvP basis.
    Execution updates are provided time to time

Eligibility:

    Fo reign int uit ional client s only.



                                                                                    15 | P a g e
Document Requirement:

    Board resolution authorizing the account opening and the signatories to sign on behalf of
     the company.
    Specimen Signature (included separately or in attached account opening form).
    Copy of the Memorandum and Articles of Association.
    Copy of the Certificate of Incorporation.
    One Copy of a valid photo ID of each account operator.
    Valid photo ID of the CEO/Managing Director of the company



3. MTA (Margin Trading Account)

Definition:

MTA (Margin Trading Account ) is a facilit y t hat is provided to client s fo r
trading wit h margin loan. The margin loan and int erest rat e can be var ied wit h
respect to market co nd it io n.

Features:

    Orders can be received through email, telephone or fax.
    Trade execution confirmation is provided to client.
    Regular emailing of Portfolio Statement.

Eligibility:

    Any cit izen of Bangladesh.
    Age mu st be abo ve eig ht een.

Document Requirement:

      Fo r Inst it ut ional Trading Acco unt :

                    Board Resolut ion.
                    Memorandum and Art icles o f asso ciat io n.
                    Specimen sig nat ure of account operators.
                    Lett er o f Aut horizat ion.
                    A valid p hoto ID of t he Managing Direct or.
                    Valid pho to ID of Account Operator(s).




                                                                                   16 | P a g e
For Ind ividual Trad ing Account :

                    Acco unt Opening Form and S ignat ure Card duly filled up.
                    Valid passpo rt or nat ional ID card photocopy.
                    Two co pies passport size photograph of account holder.
                    One co py passport size photograph of aut horized perso n ( if
                     any).



4. NITA (Non Resident Investors Taka Account)

Definition:

NITA (No n Resident Investo rs Taka Account) is a facilit y t hat is provided t o
no n-resident   ind ividuals/ inst it ut ions including non-resident     Bangladesh i
nat io nals who are int erest ed in t rading Bangladeshi secur it ies against foreig n
exchange remit t ed fro m abro ad.

Features:

    Non-resident portfolio investors have to open a Non-resident Investors Taka Account
     (NITA) with any authorized dealer in Bangladesh funding the purchase and easy
     repatriation of the sales and income proceeds.
    Securities can be purchased only through a member/registered broker of the stock
     exchange. E.g. LankaBangla Securities Ltd. (LBSL). However, public issues not yet
     listed in a stock exchange can be bought directly from the issuing company.
    For the purpose of trading securities, investors need to open a security account/trading
     account with stock broker listed with the exchanges. E.g. LBSL
    Funds from NITA can be used to purchase shares and securities listed in a stock
     exchange.
    The balances in this account are freely remittable abroad in foreign exchange.



Eligibility:

    Non-Resident individuals (Foreigners and NRBs).
    Foreign intuitions.
    Institutions located abroad which are owned by NRBs.




                                                                                  17 | P a g e
Document Requirement:

     For Institutional Trading Account:

                   Company NITA A/C number with custodial bank or A/C statement.
                   Board Resolution.
                   Memorandum and Articles of association.
                   Specimen signature of account operators.
                   Letter of Authorization.
                   A valid photo ID of the Managing Director.
                   Valid photo ID of Account Operator(s)

     For Individual Trading Account:

                   Account Opening Form and Signature Card duly filled up.
                   Individual NITA A/C Number with custodial bank or A/C statement.
                   Valid passport or national ID card photocopy.
                   Two copies passport size photograph of account holder.
                   One copy passport size photograph of authorized person(if any).




                                                                              18 | P a g e
3.9 FINANCIAL HIGHLIGHTS OF
                             LBSL


                                                                                      Million BDT
Particulars                                 2011       2010      2009        2008         2007
Revenue from brokerage                     758.51     1886.9    842.74      376.28       204.10
Capital gain from investment in share      11.94       86.38     9.92        5.37          0.00
Interest Income                            82.93       69.19     19.32       14.37        22.39
Operating Income                          1231.06    2,096.79   877.84      397.30       219.52
Profit before tax                         1066.57    1811.05    698.27      277.84       140.07
Profit after tax                           747.62    1,530.59   638.15      252.82       126.82
Shareholders’ equity                      4716.76    4,402.27   1612.64     481.09       228.27
Total asset                               7698.24    6,535.55   2012.44     602.93       291.98
Return on Equity                          15.85%     34.77%     39.58%      52.55%       55.56%
Table #2: Financial Highlight of LBSL

Analysis:

LankaBangla Securities Limited (LBSL) has lost its net profit in 2011. But it earn an astounding
139.85% growth in Net Profit in 2010 to BDT 1530.58 million largely backed by a quantum
growth of 123.91 percent of Brokerage Income. Further analysis of Net Profit in 2011 decrease
by 70% reveals that LBSL has been able to control its operating expenses which have decreased
by 8% percent only. The balance sheet of the company strengthened in 2011. Shareholders’
Equity increased by 7% in 2011. Finally the Balance Sheet size of LBSL i.e. Net Total Asset
increased significantly by 15% and reached at BDT 7698.24 million as on 31 December, 2011.




                                                                                     19 | P a g e
Chapter # 4
Methodology & Analysis
Research Introduction




In this report I divided the research part in to two segments. First is financial analysis and second
is statistical analysis.



   1. Financial Analysis: Here I include company and industry analysis.
            i.    Under company analysis I did all sorts of fundamental analysis. And all
                  sorts of graph, growth statistics, common size statement analysis etc. have
                  been included in the company analysis.
            ii.   Under industry analysis percentage of market capitalization, beta, industry
                  growth, and financial statement analysis etc have been included.




   2. Statistical Analysis: Here descriptive analysis of all variable, run test, goodness of fit
      test, correlation, and a multiple regression model have been included.




                                                                                         20 | P a g e
Chapter 4.1: Company Analysis

Company in Focus: Lanka Bangla Finance Limited
4.1.1. BACKGROUND OFLANKA BANGLA
                      FINANCE LIMITED (LBFL)

                                           Company Snapshot
                   Paid-up Capital (BDT mn)                                 1894.00
                   No of Securities (mn)                                     189.41
                   Float                                                    61.23%
                   Capitalization (BDT)                                    13978.34
                   Reserve and Surplust (BDT)                               3558.71
                                           rd
                   Adjusted Price Range (3 Jan, 10 to 7 Oct, 12)      107.9 – 67.7
                   Face Value                                                 10.00
                                                rd
                   Average Daily Turnover (3 Jan, 10 to 7 Oct, 12)         778507.5
                   Market Lot                                                500.00
                   Category                                                      A
                                                                      st
                   Year End                                          31 December


Table #3: Company Snapshot (LBFL)




LankaBangla Finance Limited (LBFL) a joint venture financial institution established with
multinational collaboration is in operation since 1997 having license from Bangladesh Bank
under Financial Institutions Act, 1993. With institutional shareholding structure, educated &
motivated human resources, friendly working environment & dynamic corporate culture has
enabled LBFL to be a diversified financial services providing institution of the country.
Technical support provided by Sampath Bank Limited, Sri Lanka has been working as a catalyst
to emerge LBFL as most innovative financial solution provider strictly in compliance with the
rules & regulations of Bangladesh Bank.

Under the right direction of the resourceful management the company has emerged as one of the
leading Financial Institutions in the country. Lanka Bangla is the lone Non-Banking Financial
Institution who operates MasterCard & VISA card including third party processing business with
other banks. The company is also involved in dealing with Securities as Broker in Capital Market
at both DSE & CSE through its Subsidiary named “Lanka Bangla Securities Limited” who is the
business leader in this arena. The Merchant Banking Department has been converted into another
subsidiary of Lanka Bangla Finance to comply with the statutory regulations who is catering to
the premier investment banking services.




                                                                                      20 | P a g e
4.1.2. SHARE-HOLDING PATTERN ANALYSIS


             Share-outstanding Pattern
                                                                                                                                                                   Share-Outstanding
Sponsor / Director                                                                      38.77
Govt                                                                                                0                                                                   Pattern
Institute                                                                                           0                                                           Sponsor / Director                                    Govt
Foreign                                                                                             0
                                                                                                                                                                Institute                                             Foreign
Public                                                                                  61.23
                                                                                                                                                                Public
Table #4: Share-Outstanding Pattern (LBFL)
                                                                                                                                                                                                                                39%

Out of 189408450 shares 38.77 percentages of                                                                                                                     61%
                                                                                     0%
shares which is equal to 73433657 numbers of                                   0% 0%
shares is being held by the sponsor director of
the company and rest 61.23% which is equal to 115974793 shares is being regularly traded
among the general public people. The government holding and institute investors have no shares
in their name. Though it is not a good sign for the company that institutional investors are
reluctant to invest in this company but the company is fundamentally very strong. Because of the
excessive public holding the share price
fluctuation is very high of LBFL.
                                                                                                                                                                                 Sponsor Details
                   Sponsor Details
                                                                                                                                                                           Foreign Sponsor                                Local Sponsor
                 a. Foreign Sponsor
Sampath Bank Ltd, Srilanka                                                              9.47%
                                                                                                                                                                                                                             24%
                 b. Local Sponsor
One Bank Ltd. Bangladesh                                                                4.86%
SSC Holding Ltd. Bangladesh                                                             1.07%
                                                                                        1.84%                                                                                                          76%
Shanta Apparel Ltd.
Individual                                                                           21.52%
Table #5: Sponsor Details (LBFL)

The shares were listed with Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd, on
17 October, 2006 and 31 October, 2006 respectively and trading started in the both houses from
1                                                                             November 2006.
                  250.0
                  200.0
                  150.0
                  100.0
                   50.0
                     0.0
                                                                                                                                                                                                           3-Sep-12
                                                                                                                                                    3-Nov-11
                                                                                                                                         3-Sep-11



                                                                                                                                                                          3-Mar-12
                                                                                  3-Nov-10




                                                                                                                                                                                     3-May-12
                                                                       3-Sep-10



                                                                                                        3-Mar-11




                                                                                                                                                                                                3-Jul-12
                                                                                                                   3-May-11
                                      3-Mar-10




                                                                                                                              3-Jul-11



                                                                                                                                                               3-Jan-12
                                                 3-May-10
                                                            3-Jul-10



                                                                                             3-Jan-11
                           3-Jan-10




                                                                                                                                                                                                                                AdjustP a g e
                                                                                                                                                                                                                                 21 | price graph for
                                                                                                                                                                                                                                        LBFL
4.1.3. BUSINESS GROWTH ANALYSIS

                               Business Growth Statistics
                                             2008         2009      2010   2011
Net interest income                        73.43% 34.06%          41.62% 64.44%
                                                                               -
Investment income                          36.99%     77.50%     155.79% 56.89%
                                                 -                             -
Commission and Brokerage income            98.09%     16.00%     101.37% 59.61%
                                                 -                             -
Operating income                           11.80%     78.46%     112.02% 36.27%
                                                                               -
Operating profit                           91.69%     86.14%     150.06% 47.91%
                                                                               -
Earnings Growth                            80.33% 96.05%         147.19% 53.29%
Assets Growth                              39.13% 65.21%          43.74% 15.83%
Equity Growth                              54.43% 127.71%        128.04% 19.42%
Deposits Growth                                    68.72%          2.87% 16.44%
Loans & Advances Growth                            37.70%         17.50% 10.19%
Table #6: Growth Statistics (LBFL)




Last 4 years Lanka Bangla Finance Ltd (LBFL) has seen continuous growth. Due to market fall
in 2010, the company has experienced tremendous growth fall in the following year. But if we
give a closer look in the table it can be infer that company is growing company. It has
significantly maintained a good acceleration rate. Despite world recession and liquidity crisis
company has continuously maintained a growth rate which enumerated that management
efficiency of the company is excellent.



Outlook for 2012
As the market is running bearish so cost of fund is decreasing so the net interest income will
increase significantly. But investment income from investing in share market will decrease
which is a big part of income composition. So overall income growth composing of all income
sources will decrease. And because of low cost of fund the amount of loan and deposit will
increase which will be good for the company.




                                                                                   22 | P a g e
By seeing all the graphical presentation it can be said that due to market crash all the growth is
negative in the year 2011 except net interest income and deposit. Which explains that for the
market crash or fall public tends to deposit more money which they found more secure than
investing in capital market. That ultimately increases the investable fund for the institution which
results in increase in net interest income.



    200.00%
                                                                    Net interest income
    150.00%
    100.00%                                                         Investment income
     50.00%
                                                                    Commission and Brokerage
      0.00%
                                                                    income
    -50.00%
                                                                    Operating income
   -100.00%
   -150.00%                                                         Operating profit
                 2008        2009         2010       2011




   140.00%

   120.00%

   100.00%

    80.00%                                                           Assets Growth
                                                                     Equity Growth
    60.00%
                                                                     Deposits Growth
    40.00%                                                           Loans & Advances Growth

    20.00%

     0.00%
                 2008        2009          2010       2011



                                    Graphical Presentation of
                                       Growth Statistics




                                                                                          23 | P a g e
4.1.4 DETAILED ANALYSIS OF KEY FINANCIALS



Operating Income Analysis
LBFL Finance had robust operating income growth like most other NBFIs. It had
generated robust operating income growth of -11.80%, 78.46%, 112.02% and -36.27% in
the year of 20098, 2009, 2010and 2011. Major part of the operating income was
contributed from commission, exchange and brokerage. Second best contributor is net
interest income. Most of the operating income came from capital market segment. In total
49.53% of the total operating income was directly contributed from capital market
operation.

Outlook for 2012

Net interest income growth will remain slow due to increased cost of fund. Commission
exchange and brokerage income for LBFL finance is expected to increase slightly as the
average turnover in DSE and CSE has started to increase after the drastic fall occurred in
FY2010. There will some investment income as the key benchmark index has increased by
more than 25%.
200.00%
100.00%
                                                                Operation Income Growth
  0.00%
                                           150.00%
             2008   2009    2010    2011                                          112.02%
                                           100.00%
                                                                     78.46%
                                            50.00%
          net interest income                0.00%    -11.80%
                                           -50.00%                                                 -36.27%
          Income from investments                       2008          2009          2010            2011




                                                                                          24 | P a g e
Net Interest Income Analysis

Paradox in Leasing Business
All the leasing companies are facing setback in their once prime business after
banks entry into this segment. Low cost of fund has enabled banks to charge low
interest against lease and term loan financing. Leasing business of LBFL Finance
has gone opposite of market trend. The interest earning of LBFL has increased
significantly at increasing growth rate, which is fully a paradox to the market.

Robust Margin Loan Growth
During the last 4 years like most other NBFIs IDLC Finance disbursed significant
amount of margin loan through its capital market wing. Till date IDLC has an
accumulated balance of 10,438 million margin loan.

Interest income from other segments
Finance companies are focusing their business to new interest income generating
segments. They are increasing their exposure in SME segment, personal finance,
and real estate finance. LBFL Finance trying to capture market share in SME and
term finance segments.

  1200                                                     Amount in ml
  1000
                                            net interest
   800                                      income
   600
   400                                      Expon. (net
   200                                      interest
     0                                      income)
          2008   2009   2010   2011



  12000                                                    Amount in ml
  10000
   8000
   6000                               Loans and
   4000                               advances/Investme
                                      nt
   2000
      0
          2008 2009 2010 2011




                                                                               25 | P a g e
Invest ment Income
LBFL Finance has moderate contribution from investment income compared to other
leading NBFIs. Contribution of investment income is much higher in the after tax net
income. Most of the trading profits are shown in the income statement. This segment
represents the most volatile earning source. We expect this segments return to grow
or decline with the market movement. At 2011 the growth rate is negative due to the
significant downfall in Bangladesh Capital Market.

Outlook for 2012
As 2012 is the year of getting back the position of Bangladesh capital market, we
expect LBFL finance will show increase amount of income from the proprietary
income segment.



                               Income from investments     Others




                      90.69%        90.74%        88.83%        92.44%



                      9.31%         9.26%         11.17%            7.56%
                       2008          2009          2010             2011




Commission Exchange and Brokerage

Brokerage division of LBFL has started with large market share. Now it has passed 15 years of its
brokerage business. It is in the top position for the last few years. And market share of its brokerage
is pretty high. Though the market has faced its greatest fall ever in the year 2010-2011 which results
negative growth rate in commission and brokerage income and with its skilled dynamic research
department it has achieved a distinct position in the market.
Banks are making their entry into the equity brokerage market. So now a days it is very competitive
for all brokerage houses to perform its business and fro LBSL it will difficulty to retain its top
position of brokerage field.
Outlook for 2012
In 2012 its contribution of securities brokerage is expected to increase as market is recovering from
the bearish trend. Though still it is hard to capture the bullish trend but market is now getting back its
normal trend. So it is very much expected that the revenue from brokerage commission is expected to
increase.

                                                                                        26 | P a g e
2000

                 1500

                                                                                   Amount in ml
                 1000                                         Commission, excha
                                                              nge and brokerage
                  500

                     0
                            2009          2010     2011




Loans and Advances
Overall loan portfolio of LBFL Finance Ltd. has made robust growth during past few years. As the
equity market is going on bearish trend the amount of loan disbursement is increasing. Though the
acceleration rate is negative but the amount of loan disbursement is increasing at a decreasing rate. And
as the market goes well the acceleration rate will tend to be positive. That means the amount of loan
disbursement will increase at an increasing rate.

Outlook for 2012
Margin loan growth will be positive or higher. Term finance and lease finance growth may revive in
2012.




   12000.00                                        40%                            Amount in ml
   10000.00                                        35%
                                                   30%
    8000.00                                        25%     Loans and
    6000.00                                        20%     advances/Investment
    4000.00                                        15%
                                                           Growth Rate
                                                   10%
    2000.00                                        5%
       0.00                                        0%
              2008       2009      2010     2011




                                                                                       27 | P a g e
Deposit G ro wth & Cost of Fund

LBFL is one of the largest public deposits holding NBFI in the industry. Deposit collection growth
rate in 2009 was 68.72%, in 2010 it was 2.87% and in 2011 it was 16.44.Cost of fund on 2010 had
decline due to the ease of the money market and on 2011 it regain its past cost.

Outlook 2012
In the uncertain and volatile money market both the deposit collection cost and bank borrowing
cost will rise significantly. Bank borrowing will be difficult to obtain.


                                                                                           Amount in ml
                                 Deposit Amount With Growth
                   6000.00                                                        1
                                                                                  0.9
                   5000.00                                                        0.8
                   4000.00                                                        0.7
                                                                                  0.6
                   3000.00                                                        0.5
                                                                                  0.4
                   2000.00                                                        0.3
                   1000.00                                                        0.2
                                                                                  0.1
                      0.00                                                        0
                                 2008            2009        2010       2011
          Deposits and other
                                2627.30      4432.90        4560.00    5309.62
             accounts:
          Growth                             68.72%         2.87%      16.44%


              Cost of deposit
     16.00%                                             As the market is gaining its bullish trend so the cost
     14.00%                                             of fund is raising. So we can infer there is a
     12.00%                                             positive correlation between cost of fund and
     10.00%                                             capital market index. As the market index going up
      8.00%                                             so the cost of deposit and vice-versa.
      6.00%
      4.00%
      2.00%
      0.00%
               2008   2009      2010      2011
      Cost of
              13.83% 11.58% 11.28% 13.98%
      deposit




                                                                                                  28 | P a g e
Asset Quality

LBFL Finance has modest amount of non-performing loan in its portfolio compared to other NBFIs.
Overall NPL ratio slightly declined to 6.51% from 7.90% in 2011. Provisioning coverage was also
very poor compared to industry average and banking industry. Provisioning coverage was only
1.45% compared to 1.41% in 2009. Though the absolute amount might have increased but relative
percentage increase was negative.


 1000.00                          9.00%                        Amount in ml

  900.00                          8.00%    Non-
  800.00                          7.00%    perfor
                                           ming
  700.00
                                  6.00%    loan
  600.00                                   (ml)
                                  5.00%
  500.00
                                  4.00%
  400.00
                                  3.00%
  300.00                                   NPL
  200.00                          2.00%    Ratio

  100.00                          1.00%
     0.00                         0.00%
            2008 2009 2010 2011




   Amount in ml                                                  Composition of Capital

  16000                              0.8   Deposits and
                                           other accounts:
  14000                              0.7                         By analyz ing t he growt h rat e
  12000                              0.6                         it can be said t hat t he amo u nt
  10000                              0.5                         of deposit is increasing but
                                           Borrowings from
   8000                              0.4                         not at an increasing rat e. The
                                           other
   6000                              0.3   banks, financial      growt h rat e was lo wer in
   4000                              0.2   institutions and      2010 due t o bullish mark et
                                           agents                but as t he market go es to
   2000                              0.1
                                           Growth of Deposit     bear ish t rend deposit gro wt h
       0                             0
            2008 2009 2010 2011
                                                                 rat e increased.




                                                                                   29 | P a g e
Total Asset Analysis
           Total assets          Total assets

30000.00                         Expon. (Total
                                 assets)         By analyz ing t he growt h rat e
25000.00
                                                 it can be said t hat t he amo u nt
20000.00                                         of t ot al asset is increasing
15000.00                                         but not at an increasing rat e.
                                                 The growt h rat e was lower in
10000.00                                         2010 due t o bullish mark et
 5000.00                                         but as t he market goes to
                                                 bear ish t rend t ot al asset
    0.00
                                                 growt h rat e increased.
           2008 2009 2010 2011




                                                                         30 | P a g e
4.1.5 RATIO ANALYSIS
                                           OF LBFL




                                         LBFl (company) Ratio
                                                                2008      2009      2010     2011
Liquidity Ratios (Times)
Current Ratio                                                   1.46      1.32      1.18      1.15
Quick Ratio                                                     1.28      1.17      0.99      0.96
Cash Ratio                                                      0.06      0.26      0.25      0.34
Liquid Assets to Total Deposits                                 0.32      0.25      0.41      0.40
Loans (Gross)/ Total Deposits                                   2.23      1.82      2.08      1.97
Asset Quality Ratio
NPL Ratio                                                   6.13%       5.38%     7.90%     6.51%
Provision Coverage                                              1.96      0.77      1.41      1.45
Non-performing loan (ml)                                   375.81       496.40    897.56    925.61
Growth Indicators
Net interest income                                                    34.06%    41.62%    64.44%
Investment income                                          36.99%      77.50%    155.79%   -56.89%
Commission and Brokerage income                           -98.09%      16.00%    101.37%   -59.61%
Operating income                                          -11.80%      78.46%    112.02%   -36.27%
Operating profit                                           91.69%      86.14%    150.06%   -47.91%
Earnings Growth                                            80.33%      96.05%    147.19%   -53.29%
Assets Growth                                              39.13%      65.21%    43.74%    15.83%
Equity Growth                                              54.43%      127.71%   128.04%   19.42%
Deposits Growth                                                        68.72%     2.87%    16.44%
Loans & Advances Growth                                                37.70%    17.50%    10.19%
Efficiency Ratios
Interest Expense/ Interest Income                          74.81%      67.40%    63.46%    59.21%
Investment Income to Investment Assets                     31.71%       7.82%    15.34%     4.26%
Interest Yield                                             14.17%      13.93%    14.25%    18.93%
Cost of Funds                                             13.83%       11.58%    11.28%    13.98%
Net Spread                                                  0.34%       2.35%     2.97%     4.95%
Net interest margin                                         3.85%       5.49%     6.01%     7.89%
Profitability Indicators
ROA(Return on Assets)                                       4.66%       5.54%     8.80%     3.53%
ROAA (Return on Average Asset)                             25.34%      33.25%    33.16%    10.50%
Price Earnings Ratio (times)                                20.04        22.41     15.56     17.72
ROE (Return on Equity)                                     40.94%      35.42%    35.49%    13.83%
Net Profit Margin                                          45.44%      49.92%    58.21%    42.66%
Gross Profit Margin                                        68.49%      71.43%    84.25%    68.87%

                                                                                           31 | P a g e
4.1.6 COMMONSIZE
                                             STATEMENT OF LBFL



Last 4 years common size statement of Lanka Bangla finance Limited:

                                     Common size Statement (percentage of Total Asset)

 Statement of financial Position                                              2008         2009      2010         2011
 Property and assets
 Cash:                                                                       0.44%       0.40%      0.48%        0.53%
 Balance with other banks and financial institution                           10.02        7.70      9.14         9.04
  Money at call and short notice/Placement with banks & other
 financial institution                                                         0.00        0.00      0.00         0.00
  Investment in shares & securities                                            3.01       13.13     11.90        15.95
  Loans and advances/Investment                                               71.95       59.97     49.02        46.64
  Land, building, furniture and fixtures (including leased assets)             1.05        0.69      1.01         0.84
  Other assets                                                                13.54       18.11     28.45        27.00
  Total assets                                                            100.00%     100.00%     100.00%    100.00%
  Shareholder's equity & Liability
  Borrowings from other banks, financial institutions and agents              39.47       37.82     32.87        37.78
  Deposits and other accounts:                                                32.29       32.98     23.60        23.72
  Other liabilities                                                           16.90       13.58     16.96        11.27
  Total liabilities                                                         88.66%       84.37%    73.43%     72.78%
  Shareholder's equity                                                        11.34       15.63     24.79        25.56
  Minority Interest                                                            0.00        0.00      1.78         1.66
  Total liabilities and shareholders' equity                              100.00%     100.00%     100.00%    100.00%


                             Income Statement                                 2008         2009      2010         2011
  Net interest income                                                        2.93%       5.08%      7.19%     11.82%
  Income from investments                                                      0.96        1.70       4.34       1.87
  Commission, exchange and brokerage                                           0.00       11.55      23.25       9.39
  Other operating income                                                       6.38        0.00       4.06       1.67
  Total operating income                                                      10.26       18.32     38.84        24.75
  Total operating expenses                                                     3.23        5.23      6.12         7.70
  Profit before provision against loans and advances                           7.03       13.09     32.72        17.05
  Total provision                                                              1.21        1.92      4.07         1.02
  Profit for the year before taxation                                          5.82       11.16     28.65        16.03
  Provision for tax                                                            1.16        2.02      6.04         5.47
  Net profit after tax for the year                                            4.66        9.14     22.61        10.56
Source: Annual Financial Statement




                                                                                                  32 | P a g e
Chapter 4.2: Industry Analysis

Industry in Focus: Financial Institutions
4.2.1. INDUSTRY SNAP NON BANKING
             FINANCIAL INSTITUTION (NBFIs)


                          Industry Snapshot
                          Paid-up Capital (BDT mn)            20438.96
                          Number of listed Company                   22
                          Capitalization (BDT)          163,911,375,872
                          Sector PE                                19.1
                          Sertor Earning                  8,714,468,569
                          Sector Beta                      0.905396574
Table #7: Industry Snapshot



Financial institution sector is the 4th highest sector in term of market capitalization. Non-Bank
Financial Institutions (NBFIs) are those institutions that are licensed and controlled by the
Financial Institutions Act of 1993 (FIA 93). NBFIs give loans and advances for industry,
commerce, agriculture or housing; carries on business of hire purchase transactions including
leasing of machinery or equipment; involves in business of the underwriting or acquisition of, or
the investment or re-investment in shares, stocks, bonds, debentures or debenture stock or
securities issued by the government or any local authority; finances venture capital; gives loan
for house building and property purchases and uses its capital to invest in companies. The major
differences of NBFIs with commercial banks are that the former cannot accept any deposit which
is payable on demand by cheques, drafts or orders drawn by the depositor and cannot deal in
foreign exchange. Starting from the IPDC in 1981, a total of 29 NBFIs are now working in the
country as of October, 2012. And out of 29 NBFI 22 companies are listed at DSE and CSE.
The lease financing practices in Bangladesh have grown significantly within the last 10 years.
Competition among the leasing companies has grown stronger with the growth of the NBFIs,
besides entrance of commercial banks in the lease financing market who have the advantage of
lower costs of fund compared to the NBFIs. Currently, out of 29 NBFI, 22 specialize in lease
financing. As per central bank data released in May 2011, lease financing constituted 64.5% of
total long term assets, with the rest consisting mainly of term financing.
For NBFIs the prime sources of funding are loans from commercial banks and other financial
institutions, term deposits from the public, funds from capital market by issuing shares,
debentures, bonds etc. and loan facilities from the international agencies like ADB, IDA, IFC
etc. NBFIs are mostly dependent on funds from the credit lines of the commercial banks at a
relatively higher rate of interest ranging up to 15%. Moreover, they have to provide high and
expensive collateral securities like fixed deposits at the time of borrowing fund from the
commercial banks. Raising fund from capital market is a prospective way to reduce dependency
on borrowed funds and boost up the activities of NBFI’s in an efficient manner.




                                                                                     33 | P a g e
The financial system of Bangladesh is comprised of three broad fragmented sectors:
   1. Formal Sector,
   2. Semi-Formal Sector,
   3. Informal Sector.

The sectors have been categorized in accordance with their degree of regulation.
The formal sector includes all regulated institutions like Banks, Non-Bank Financial Institutions
(NBFIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant
Banks                                                                                          etc

The semi formal sector includes those institutions which are regulated otherwise but do not fall
under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange
Commission or any other enacted financial regulator. This sector is mainly represented
by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli
Karma Sahayak Foundation (PKSF), and Samabay Bank, Grameen Bank etc., Non
Governmental       Organizations        (NGOs      and discrete     government       programs.

The informal sector includes private intermediaries which are completely unregulated.

Non Bank Financial Institutions (NBFIs) are those types of financial institutions which are
regulated under Financial Institution Act, 1993 and controlled by Bangladesh Bank. Now, 31
NBFIs are operating in Bangladesh while the maiden one was established in 1981. Out of the
total, 2 is fully government owned, 1 is the subsidiary of a SOCB, 13 were initiated by private
domestic initiative and 15 were initiated by joint venture initiative. Major sources of funds of
NBFIs are Term Deposit (at least six months tenure), Credit Facility from Banks and other
NBFIs,         Call     Money       as      well      as      Bond       and      Securitization.

The major difference between banks and NBFIs are as follows:
   • NBFIs cannot issue cheques, pay-orders or demand drafts.
   • NBFIs cannot receive demand deposits,
   • NBFIs cannot be involved in foreign exchange financing,
   • NBFIs can conduct their business operations with diversified financing modes like
      syndicated financing, bridge financing, lease financing, securitization instruments, private
      placement of equity etc.

If we consider the case of LankaBangla Finance Limited, it has started its operation in 1996.
Since then, the NBFI is excelling in a rapid manner. The growth of capital and cliental base has
been tremendous. And LankaBangla not only established its reputation in the market, it is also
looking into the other spheres of banking as well. It has already opened merchant banking wing,
securities and asset management far. And it has a long term view to convert its total operation
into Investment banking system.

                                                                                      34 | P a g e
4.2.2 MARKET CAPITALIZATION OF NBFI
                        INDUSTRY




Out of 100% market capitalization 8% is covered by NBFI sector (on 11th October, 2012). That
is pretty high and ranks as number 4 in Bangladesh Capital Market.
.


                      4.2.3 COMPOSITION OF INCOME



The major source of income for any NBFI is interest income. Because every nbfi's main business
is giving different terms loans. so the major portion of income comes from interest income. And
as the graph suggests the amount of interest income is increasing day by day. Then second major
source is investment income is investment income. From the bar chart it can be clearly see the
amount of investment income was high in the year 2010 due to rapid index growth in DSE and
CSE. As the market was bearish in year 2011 we can see there is a acute fall of investment
income in the year 2011. Almost every major NBFI has brokerage or security extension like
lanka bangla finance has lanka bangla securities, IDLC has IDLC securities etc. So it is another
big source of income. Then also NBFI has income from dividend income and other operating
income.




                                                                                    35 | P a g e
30000.00


   25000.00
                                                                        Other Operating Inocme

   20000.00
                                                                        Dividend

   15000.00                                                             Commisssion, Exchange &
                                                                        Brokerage
   10000.00                                                             Income from Invesetment

    5000.00                                                             Interest Income

        0.00
               2008          2009         2010          2011


Amount in ml




                        4.2.4 INCOME GROWTH




   20000.00                                                                                                      1.5

   15000.00                                                                                                      1

   10000.00                                                                                                      0.5

    5000.00                                                                                                      0

        0.00                                                                                                     -0.5
                      2008                       2009                       2010                  2011

                                    Net profit after tax for the year              Growth Rate

Amount in ml


The amount of industry income was highest in the year 2010 as the capital market was bullish
but as the market moved to bearish trend the amount of income tends to decrease. But the
situation might improve in the year 2012. Because slowly market is getting back its bullish trend.
And also world economy is recovering from the recession.



                                                                                                         36 | P a g e
4.2.5 INDUSTRY GROWTH
                                              Industry Growth Statistics

                                                                  2009          2010       2011

Net interest income                                               14.64%        16.93%     26.72%

Investment income                                                 -4.32%        170.29%    -39.80%

Commission and Brokerage income                                   174.76%       99.64%     -38.57%

Operating income                                                  23.08%        91.71%     -16.70%

Operating profit                                                  23.05%        104.10%    -24.38%

Earnings Growth                                                   51.84%        127.15%    -30.66%

Assets Growth                                                     128.42%       135.24%    112.46%

Equity Growth                                                     136.57%       245.89%    115.23%

Deposits Growth                                                   31.30%        20.09%     14.36%

Loans & Advances Growth                                           24.52%        29.75%     15.84%


Table #8: Industry Growth

Source: Annual Financial Statement analysis


                                                                                          Growth Analysis

   100%                                                                                   By analyzing           t he
                                                                                          growt h rat e it can be
    80%
                                                                                          st at ed t hat except
    60%                                                                                   invest ment      inco me
    40%                                                             Commission and        all o t her co mpo sit io n
                                                                    Brokerage income      of       inco me       has
    20%                                                             Investment income     sig nificant ly       fa l l
      0%                                                                                  down due t o bear is h
                                                                    Net interest income   t rend of mark et .
   -20%

   -40%

   -60%
                  2009              2010             2011


                                                                                                  37 | P a g e
260.00%
240.00%
220.00%
200.00%
                                                  Assets Growth
180.00%
160.00%
140.00%                                           Equity Growth
120.00%
100.00%                                           Deposits Growth
 80.00%
 60.00%                                           Loans & Advances
 40.00%                                           Growth
 20.00%
  0.00%
            2009       2010        2011



Growth Analysis Continues

By analyz ing t he gro wt h rat e it can be st at ed t hat all t he major co mponent s
o f balance sheet are in declining t rend. Though t he amount of Tot al asset ,
depo sit , lo ans, equ it y are incr easing but at a decreasing rat e. As t he mark et
go es well and inco me st art s generat ing t he growt h rat e will be higher.




                                                                            38 | P a g e
4.2.6 RATIO ANALYSIS OF
                                          NBFI INDUSTRY

                                                  2008     2009      2010      2011

              Liquidity Ratios (times)

              Current Ratio                       3.35     3.42      3.54      3.53

              Quick Ratio                         2.80     2.91      3.01      3.07

              Cash Ratio                          0.46     0.42      0.30      0.21

              Loans (Gross)/ Total Deposits       1.40     1.33      1.44      1.46

              Growth Indicators

              Net interest income                          23.98%    34.19%    24.88%

              Investment income                            -4.32%    170.29%   -39.80%

              Commission and Brokerage income              174.76%   99.64%    -38.57%

              Operating income                             23.08%    91.71%    -16.70%

              Operating profit                             23.05%    104.10%   -24.38%

              Earnings Growth                              51.84%    127.15%   -30.66%

              Assets Growth                                28.42%    35.24%    12.46%

              Equity Growth                                36.57%    145.89%   15.23%

              Deposits Growth                              31.30%    20.09%    14.36%

              Loans & Advances Growth                      24.52%    29.75%    15.84%

              Efficiency Ratios

              Interest Expense/ Interest Income   74.16%   72.05%    67.93%    68.40%

              Investment Income to Investment     30.76%   19.11%    23.06%    11.62%
              Assets

              Interest Yield                      15.44%   14.13%    12.50%    14.04%

              Profitability Indicators

              Net Profit Margin                   42.10%   51.94%    61.54%    51.23%

              Gross Profit Margin                 81.31%   81.29%    86.54%    78.56%

Source: Annual Financial Statement




                                                                                         39 | P a g e
4.2.7 KEY INFORMATION
                               OF NBFI INDUSTRY


                                       Basic Ratio                         Yearly Growth 2011

      Company Name          Price to   Price to         Non       Net Interest     Total     Net Income
                             Book      Earnings      Performing   Income (%)     Operating   Growth (%)
                             Value      Ratio         Loan (%)                    Income
                                                                                    (%)

Bay Leasing & Investment       1.73       19.17           17.12        214.90       -68.41        -57.19
Limited )

Bangladesh Finance and         2.31       31.43            9.58        -70.03       -79.33        -95.95
Investment Co.Ltd

Bangladesh Industrial          2.22         -8.2          13.14        100.37       -36.31        -92.72
Fin. Co. Ltd.

Delta Brac Housing             3.71       16.04            0.14         16.52        22.04         63.35
Finance Corp. Ltd

FAS Finance &                  1.91       -69.68           9.28         99.74       -14.62        -91.42
Investment Limited

First Lease Finance and        3.30       16.68            9.28         -4.21         0.08        -40.65
Investment Ltd

GSP Finance Company            2.57       26.34           14.19        -25.19       -53.62        -56.51
(Bangladesh) Limited

ICB                            2.07       12.99                          6.45        26.23         16.84

IDLC Finance Ltd               3.31       27.41            2.32         24.95       -29.11        -62.30

International Leasing &        2.34       57.73            9.27        -24.77       -67.19       -116.49
Financial Serv.L

Industrial Prom. & Dev.        1.22       -46.09          13.04        -26.27       -23.70        -36.62
Co. of BD Ltd

Islamic Finance &              2.64       23.45                         32.21       -11.60        -77.71
Investment Ltd

LankaBangla Finance ltd        2.36       26.56            6.51         64.44       -36.27        -53.29

MIDAS Financing Ltd.           2.91       -16.88           5.58         52.41         7.48        -60.37

National Housing Fin. and      3.42      533.75            6.42          3.74       -14.71        -28.24



                                                                                               40 | P a g e
Inv. Ltd.


Phoenix Finance and                  2.77    17.58    3.80    -3.78   -44.63       15.60
Investments Ltd

Peoples Leasing and Fin.             0.35    18.39   11.47    30.28   -25.97      -49.07
Services Ltd

Premier Leasing &                    0.49    36.17    6.24    70.91    0.16       -47.16
Finance Limited

Prime Finance &                      0.52    46.06    6.48   -18.09   -45.43      -55.37
Investment Ltd

United Leasing                       0.73    21.63    4.07     1.35    7.30       -43.60

Union Capital Limited                0.84   254.17    9.52    51.16   -51.60      -68.77

Uttara Finance                       0.53    10.96    2.73   104.88   70.56        -4.10

Table #9: Industry Information

Source: Annual Financial Statement




                                                                               41 | P a g e
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance
Role of fundamental determinant on company financial performance the case of lanka bangla finance

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Role of fundamental determinant on company financial performance the case of lanka bangla finance

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