Bangladesh (BD) Finance Ltd has registered an 8.2% year-on-year decline in net profit for 2022.
According to the company's disclosure on the Dhaka Stock Exchange (DSE) on Tuesday, its profit fell because of providing additional interest suspense, higher provisions against stressed loans, leases and advances, and lower income from investments in securities.
BD Finance's Managing Director and CEO Md Kyser Hamid told The Business Standard that the profit fell despite the fact that the company, in a rare case last year, managed to reduce its average cost of deposits by 66 basis points whereas deposits grew by 4.5% in a year.
2022 was a tough year for all the lenders as loan repayment was not up to the expectation due to the stress on their clients' businesses, he said, adding that BD Finance's non-performing loans (NPL) increased a bit that required higher provisioning.
According to the banking rules, every lender has to set aside a certain amount of its income in proportion to the NPL and the amount is called their provision.
Also, some interest income against bad loans that accrue on paper but are not earned in reality need to be excluded from the profit and loss accounts, and the amount keeps growing in suspense accounts.
Hamid said his firm, under a five year plan to build a strong buffer of Tk200 crore against any unwanted shock, has set aside an additional amount of Tk27 crore in forms of provisioning and interest suspension out of its 2022 income. That was the main reason behind the earnings drop.
"We conservatively feel that the repayment of loans that are usually regular, but a little stressed, can finally become irregular. So we made provisions against those too," he said, adding that it helped the firm go stronger against any worse market scenario.
Focus on retail and SME deposits helped the NBFI reduce its borrowing cost in a year when the entire financial market saw borrowing cost inching up.
SME and retail depositors are less rate sensitive and stickier compared to the large corporate depositors, he said adding that the number of its SME and retail depositors grew to over 6,200 at the end of 2022, from 4,700 a year ago.
BD Finance's Islamic window also helped it get more profitable deposits, according to the CEO.
Capital market investment was profitable for BD Finance in 2022 when DSEX, the major equity index of the DSE, dropped by 8.1% and BD Finance's investment income declined to 27% of its consolidated capital market portfolio, from 43% in 2021.
"Our capital market return was lower than that of ours in the previous year, but significantly higher than the overall market," said Hamid.
BD Finance's brokerage subsidiary posted little higher profits while its merchant banking subsidiary faced earnings decline in 2022.
The NBFI, along with its subsidiaries, posted an earnings per share of Tk1.25 for 2022 while the net asset value per share stood at Tk17.41 at the year end.
BD Finance shares having a face value of Tk10 apiece were stuck at the floor price of Tk44.1 on the DSE for nearly six months.