Bangladesh Finance endured losses for the first time in 2023 for what it said is higher provision and a substantial decline in income from investment in securities in the bearish market.
The non-bank financial institution (NBFI) has reported a loss of Tk 1.05 billion for 2023, whereas it earned Tk 236 million in the year before, according to its audited financial statements published on Thursday.
The company went in the red in the fourth quarter through December last year after profits in the preceding quarters because of additional interest suspense and higher provisions against stressed loans, leases and advances.
Subsequently, the consolidated earnings per share (EPS) stood at Tk 5.60 in the negative for the year, which was Tk 1.25 a year ago.
The high amount of losses in the fourth quarter of 2023 would suffice to wipe out profits made in the previous four years.
Due to the heavy losses, the board declared no dividend for the first time since the listing on the stock exchanges in 2007.
Md Sajjadur Rahman Bhuiyan, chief financial officer, said the company went into the red mainly due to allocation of additional interest suspense and provisions against stressed loans.
If any client fails to pay loan installments for more than three months in a row, their accounts get suspended, and the pending interest is not shown as income.
The company could have spread out provisions in all the quarters but that would have made an impact on quarterly performance, said Mr Bhuiyan. "So, we kept it in the final quarter."
The NBFI did not receive repayments against loans as expected due to the financial distress some clients had been going through after the pandemic. While non-performing loans jumped requiring higher provision, income from stocks also dwindled.
"We have some very big corporate customers. They are still in trouble and their payment is still not regular."
Hence, the management set aside more than what was necessary as interest suspense and kept higher provision than required, considering that the company may have to bear further financial shock in the future.
The NBFI's NPL stood at Tk 1.54 billion at the end of 2023, but it kept provisions amounting to Tk 2.35 billion, more than needed.
"These measures were taken to mitigate unforeseen credit risks, address potential losses early, prevent further deterioration and defaults, ensure adequate reserves, and safeguard overall financial health," said Mr Bhuiyan.
If interest income against bad loans accrues on paper but are not realized, the amount should be excluded from the profit and loss accounts. When this happens, the amount in the suspense accounts may keep growing.
According to the rules, every lender has to set aside a certain amount of its income, commensurate with non-performing loans. That is called provision.
"The provision should have been kept in every quarter portraying the true financial health of the company," said Md Moniruzzaman, managing director of Prime Bank Securities.
"Why would they keep higher provision than required? Or is it because the provision was due much before and they were forced to keep it this time in the final quarter," he added.
The NBFI also earned less in terms of fees and commissions from the capital market.
It is yet to publish the detailed annual financial statements for 2023.
However, its nine-month interest income plunged 45 per cent year-on-year to Tk 210 million through September last year while investment and commission income tumbled 50 per cent to Tk 104 million.
The company's borrowing from other banks escalated 44 per cent year-on-year to Tk 4.55 billion while deposits dropped almost 12 per cent to Tk 8.64 billion in the nine months through September last year.
"We have a big amount of investment in the stock market but the market has been depressed for a long time. The bearish market took a heavy toll on the income of the subsidiaries," said Mr Bhuiyan.
Bangladesh Finance has two subsidiaries --- Bangladesh Finance Securities and Bangladesh Finance Capital.
The stock market stagnated in 2023 so the subsidiaries' income nosedived. Moreover, leasing companies had to keep 100 per cent provision against unrealized losses from the investments.
Meanwhile, Thursday's earnings disclosure led to the stock's decline by 8 per cent to Tk 15.2 per share on the Dhaka Stock Exchange. The stock topped the list of losers for the day. It plunged more than 65 per cent since the removal of the floor price.
First quarter financial performance
Though the NBFI's annual income in 2023 painted a grim picture, the first quarter results are good.
Bangladesh Finance's profit grew more than 90 per cent year-on-year to Tk 37.54 million in January-March this year, due to higher capital gains and dividends received from investment in securities.
babulfexpress@gmail.com