Subsidiary's non-repayment of loans drags GSP Finance into a huge loss

GSP Finance Company (Bangladesh) Ltd, a publicly listed non-bank financial institution (NBFI), incurred a whopping Tk66.71 crore loss in the first nine months of this year, owing to the failure of its subsidiary to repay loans.

In the January to September period of last year, the company made a profit of Tk9.88 crore.

Seeking anonymity, an official at the company said the business of GSP Finance's subsidiary GSP Investments Limited is solely dependent on the capital market.

"Because of the capital market slowdown this year, GSP Investments has not been able to post good business through investments."

As a result, the subsidiary failed to repay the Tk249 crore it borrowed from GSP Finance, which became a bad loan for the listed NBFI. Therefore, GSP Finance had to make provision against a big portion of this loan, which is why its net interest income decreased significantly leading to a huge loss in the Jan-Sep period, the official said. 

During the first nine months of this year, GSP Finance made a provision of Tk55.05 crore, which was 260% higher than what it was in the same period of 2022.

The NBFI's net interest income stood at negative Tk12.37 crore, which was positive Tk31.03 crore in the Jan-Sep period of last year.

In the July to September quarter of this year, the company's provision against loans stood at Tk33.78 crore, net interest income at negative Tk11.32 crore, and after-tax loss at Tk43.27 crore.

GSP Finance was listed on the Dhaka Stock Exchange (DSE) in 2012. Lease financing, term finance, acceptance of term deposits, working capital finance, syndication finance, and money market operation are its main businesses.

In 2022, the company incurred a Tk17.03 crore loss, which is why its board of directors could not recommend any dividend for that year.

The company's shares are stuck at the floor price of Tk30.3 on the DSE.

As of 30 November 2023, sponsors and directors jointly held 33.5%, institutions 19.16%, and public investors 47.34% shares in the company.

Currently, the non-bank financial institution (NBFI) sector in Bangladesh has been struggling with a huge amount of non-performing loans, a liquidity crisis, and an extreme squeeze in net interest margins.

A significant portion of the blame can be attributed to non-compliant firms that sunk due to non-compliance and embezzlement.

However, some top-tier firms with better corporate governance, winning strategies, and the financial strengths to weather tough times, clearly stood apart from their mediocre competitors and also exhibited a contrasting picture of the devastated NBFIs that were struggling to pay back depositors.