Despite the tough economic environment, constrained margins and rising expenses, IDLC have managed to end the 2016 financial year with a healthy financial position. Considering our substantial investment in infrastructure and human capital so as to enhance efficiency and cater for ongoing growth, we are pleased with the performance of the group. We have incorporated an in-depth financial analysis below, for a better reflection of our financial performance.
|Particulars||2016 BDT million||2015 BDT million||Year on Year Growth|
|Net interest income||3,737||3,418||9.34%|
|Increase in Provision||156||312||-50.01%|
|Net Profit after tax||1,780||1,459||22.00%|
Despite facing a very challenging year, we have delivered a strong set of results, with a post-tax profit of BDT 1,780 million, a 22% increase over the previous year. This growth reflects the enhanced internal capital generation capacity of the group. The key factors behind the results were growth in the lending book, efficient management of fund, and reduced NPL ratio. Following the growth in profits, our profitability ratios have also improved compared to the previous. This year our return on assets rose to 2.33% from 2.20% and our return on equity rose to 21.29% from 20.39%.
The total interest income of the group has increased to BDT 8,360 million from BDT 8,251 million, with a marginal growth of 1.32%, consequent to an overall portfolio growth of 12.77%. The benefit of the decent portfolio growth was to some extent offset by decrease in lending rates commensurate with the industry trends for the last couple of years. Term financing, real estate financing and lease financing have been our top income generators. Our income from term financing has recorded a significant growth of 21.92% over the previous year. The portfolio growth, which led to the increase in interest income, has been possible because of our high levels of customer service, product innovation, customized solutions and the continuous efforts of our sales team. In addition to this, our focus on quality portfolio growth has also allowed us to keep our NPL under check.
While we could pose some positive growth in Interest Income despite lending rates decreasing significantly, our interest expense was kept under control. In 2016, our interest expense was BDT 4,622 million compared to BDT 4,833 million in the previous year, resulting in a reduction of 4.36%. Term deposits, which holds 77% of our funding mix, has accounted for 82.74% of the total interest expense. Our attempt of reducing the proportion of higher-cost term deposit in our deposit book has enabled us to achieve a reduction in our overall interest expenditure. Furthermore, re-pricing of deposit rates driven by a downward pressure on market interest rates and utilization of refinancing facilities from Bangladesh Bank helped us control our interest expense.
A rise in interest income and a reduction in interest expense have led to a 9.34% growth in our net interest income, which stood at BDT 3,737 million at the end of the financial year 2016.
The main sources of our fee income include commission and brokerage fees, arrangement fees, portfolio management fees, corporate advisory fees and so on. A major portion of our fee income is generated from commission and brokerage fees. Our fee income rose to BDT 441 million in 2016, posting a significant growth of 23.64% over the previous year.
The group’s operating expense increased by 19.06% to BDT 1,962 million in 2016 compared to BDT 1,648 million in 2015. Our operating expense refers to the costs associated with staff, premises, technology and others. The rise in overall operating expense is the outcome of our major investments in human capital and infrastructure.
The restructuring of compensation and benefit package, increased investment in training, new recruitment and higher number of promotions have been some of the reasons behind the significant increase in staff cost. Our premises related cost increased significantly by 48.38% amidst the relocation of two of our major offices in Dhaka to bigger and better spaces and opening of 4 new branches.
In 2016, a major challenge has been to keep the operating expenses under control. However, our increased investment in human capital and infrastructure resulted in a significant rise in operating expense, which led to a higher cost to income ratio of 38% compared to 36% in the previous year. Though our cost to income ratio increased from the previous year, we still managed to keep it below the initially targeted ratio of 40%.
Provision for Loans/Investments
Provisions have been maintained for classified loans as per the provisioning policy issued by the Central Bank. Increase in provision in 2016 was less than that of 2015 mainly due to the decrease in provision for diminution in value of investments, attributable to the increase in market price of our investments.
As the income generation capacity of the group increased gradually throughout the last 5 years, so did the contribution of the company to the government exchequer in the form of Income Tax. The tax expense of the group has increased to BDT 1269 million in 2016 from BDT 1169 million in the previous year. The effective tax rate in 2016 was 41.61%.
|Cash and cash equivalent||11,252||13,435|
Our lending portfolio grew by 12.77% reaching BDT 62,265 million in 2016 from BDT 55,212 million in 2015. Lease finance, real estate finance, term finance, car loan, etc. have been the key components of our lending portfolio. The growth in the lending portfolio was driven term finance, real estate finance and lease finance. A major portion of the portfolio is dominated by term finance with a share of 51.62% followed by real estate finance with a share of 28.29%.
Our NPL ratio improved from 3.06% in 2015 to 2.98% in 2016. After an increase in NPL in 2015 (as demonstrated in the chart above), we have taken up specific programs for different customer segments to arrest the rise of NPL. Apart from this collection effort, we have also further strengthened the credit appraisal process and introduced a credit scoring system, developed in collaboration with International Finance Corporate (IFC), to assist the credit decision making process. These initiatives, coupled with some written off accounts, which were fully provided for, enabled us to reduce the NPL slightly. We are confident of reducing the NPL further in 2017.
Our funding base increased by 6% compared to the previous year and moved to BDT 61,788 million from BDT 58,210 million. This growth was largely driven by our term deposits, which amounted to BDT 47,374 million in 2016. The efforts of our products and market team in developing and offering flexible and customized products that cater to the needs of our customers have helped us achieve this growth.
The debt to equity ratio came down to 7.87 times in 2016 from 8.43 times in 2015, demonstrating an enhancement in the leverage position of the group. An increase in the retained earnings has helped to reduce our dependency on external funding mechanisms and reflects an improvement in the internal capital generation capacity of the group.
Our earnings per share increased to BDT 7.08 in 2016 from BDT 5.81 in 2015, indicating a growth of 22%. This reflects the improved profit earning capacity of our group.
A growth of 15% took the shareholders’ fund to BDT 8,938 million compared to BDT 7,786 million in the preceding year. This growth was mainly driven by the positive change that occurred in retained earnings. While our paid-up capital remained static, our retained earnings and reserves grew by 31% and 12% respectively. The retained earnings growth was boosted by the 22% rise in profit after tax, whereas our reserves grew by 12% due to an increment in statutory reserves. In 2015, 35% of the shareholders’ fund was held by retained earnings, which grew to 40% in 2016. This demonstrates a higher internal capital generation capacity of the group compared to the prior year.
In the financial year 2016, cash flow from operating activities before adjusting the changes in operating assets and liabilities decreased marginally by 0.38%. Though our cash inflow from interest, fees and commission increased, the cash flow from working capital fell significantly in 2016, driven by increased disbursements. In 2015, there was a net cash inflow from operating activities of BDT 5,268 million, however in 2016 there was a net cash outflow of BDT 1,298 million.
The cash outflow from investing activities increase to BDT 1,228 million in 2016 from BDT 1,046 million in 2015, as a result of increased investments in securities.
The group obtained BDT 2,164 from term loans, while it repaid BDT 2,623 million of its previously obtained term loans. In addition, the group also paid a significantly higher amount of dividend this year. This caused the net cash inflow from financing activities to fall from BDT 1,229 million in 2015 to BDT 344 million in 2016.
The cash and cash equivalents balance of the group fell to BDT 11, 252 million in 2016 compared to BDT 13,435 in the preceding year. However this decrease is not an indication of the cash generation capabilities of the group, but rather reflects better and more efficient utilization of funds.