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NBFIs see clouds over profits

Sarwar A Chowdhury
A liquidity shortage in the money market and a highly volatile stockmarket cast a gloom over non-bank financial institutions (NBFIs) in the first half this year.
A third of them posted unimpressive corporate results in the six-month period up to June.
Net profits of 13 listed NBFIs declined, while earnings of six others increased compared to the same period a year ago, according to half-yearly data.
There are 22 listed NBFIs. Of them, 19 maintain calendar year for accounting purposes, while three maintain financial year and they logged lower profit this year.
Although the liquidity shortage eased in the second quarter (April-June), it was not enough for the NBFIs, which mainly depend on borrowing from banks to do business, sector people said.
They also said provisioning requirements for nonperforming loans and the losses from the stockmarket investment ate into the profits of the NBFIs.
On the other hand, the NBFIs having diversified busi-
ness in corporate, retail and small and medium enterprises could managed to maintain the profit growth, they added.
Those having more exposure to non-bank business than stockmarket investment fared well in the first half.
“The overall money market was not in a good shape in the first half this year. The NBFIs had to borrow at higher rates during January-June, fuelling their costs of business,” said Akter Hossain Sannamat, managing director of Union Capital.
Union Capital's half-yearly net profit declined by almost 95 percent compared to the same period last year.
The average call money rate was between 19.66 percent and 15.02 percent during January-June, higher than 11.64 percent to 10.93 percent during the same period in 2011, according to Bangladesh Bank data.
A higher call money rate means a liquidity shortage in the money market.
“Most of the NBFIs could not borrow from the banking sector as per their demand and so their income declined,” said Sannamat. He said the higher provisioning requirements for nonperforming loans also dented profits of many.
“The stockmarket was a major source of income for the financial institutions. But almost all the NBFIs incurred losses from stock investment,” said Sannamat.
Since the price debacle in January last year, DGEN, the benchmark index of the Dhaka Stock Exchange, has been on a decline. At the end of June, the price index came down to 4,572 points from 8,304 points on January 2 last year. The index closed at 4,256 points yesterday.
Asad Khan, managing director of Prime Finance, said if the NBFIs are allowed to take short-term deposit, the liquidity shortage in the money market would not affect their business.
“Presently, we can receive deposit for not less than six months, but we want the limit to come down to three months,” said Khan, also president of Bangladesh Leasing and Finance Companies Association.
However, the central bank that regulates the NBFIs thinks that long-term investment by taking short-term deposit will create a mismatch.
IDLC Finance was one of the financial institutions that saw a rise in their profit.
“Unlike other NBFIs, our focus was on non-bank business, as the stockmarket was highly volatile,” said Selim RF Hossain, managing director of IDLC whose half-yearly net profit jumped by 40.57 percent.
For others, provisioning requirements against loans and losses from stock investment increased their costs. “The stockmarket business was difficult,” said Hossain.
sarwar@thedailystar.net