South East University Term paper on Financial Institution Analysis of IDLC Finance
Southeast University
Term paper on Financial Institution Analysis
South East University [Year]
Course Code: FIN-2122 Submitted by : Course Title: Rajib Alam Financial 2011010000195 Management
Batch No: 27th Section : F Term paper on Financial Institution Analysis
South East University
Term paper on Financial Institution Analysis
Southeast University
Abstract
This paper examines the issues or topics which are presently subject to Financial Institution analysis of IDLC financial institutions. The paper demonstrates that there has been diversity in the Topics or issues which non finance believes to be important. A financial institution of the most critical issues or topics is provided which should be helpful to those engaged in doing analysis for financial institutions. IDLC Finance Limited one of renowned non banking financial institution in Bangladesh. It started its operation at 1985 and it is the pioneer financial institution in Bangladesh. IDLC Finance Limited has different kinds of products and services. IDLC is financing in different sectors through their products and services. IDLC Finance Limited is a mother company. I have done my term paper in IDLC finance. And my topic was the “Financial Institution analysis of IDLC Finance”. In Bangladesh investment bank mainly perform four kinds of activities. They are issue management, underwriting, portfolio management and corporate advising. IDLC Finance Limited is performing all of these four activities. IDLC Finance Limited is providing different capital market related services to the corporation and institution seeking for the funds and individuals seeking opportunities to invest their fund in different securities. The companies wide array products and services range from retail products ,such as home loans, car loans, corporate and SME products including lease and term loans, structured finance services are ranging from syndication to capital restructuring and a complete suite of merchant banking and capital market service. IDLC Finance Limited is Financial institution its activities in such a way, that why number of client of it increasing day by day. It is a very good sign for a capital market. IDLC Finance Limited is a providing good return to its parent company as well as the country economy through its activities. The current term paper aimed at critically examining the Analyzed of a private financial institution. The main objective of this term paper was to analyze the financial institution analysis of IDLC finance ltd. along with how efficiently are providing services to its customer. From Financial Analysis it has been seen that the performance of IDLC finance ltd is really satisfy.
Term paper on Financial Institution Analysis Southeast University
Acknowledgement
It’s a matter of great contentment to be able to complete this term paper in due time. My endeavor will be considered successful if the term paper is of any help to you. At the very outset I would like to express my heartiest gratitude to Almighty Allah for giving me the capacity to complete this task. Then I would like to place my humble gratitude to my respected faculty Lecturer: S. M. Mujahidul Islam SEU Business School, Southeast University for his valuable time commitment, guidance, patience and stimulation made along with the course of action. I have put my best effort to make this report to serve its purpose; that is, to come across the Financial Institution analysis of IDLC Finance Limited. I would like to avail the opportunity of expressing my deep gratitude and regards to my parents for their continuous support. I am indebted to all of my classmates to support and .providing me with his experience and practical knowledge in this regard. Along with this I want to thank one other people who is Md. Harun ur Rashid. He is my brother. Without the help of these people this term paper probably wouldn’t be completed in due time.
Term paper on Financial Institutions Analysis of IDLC
Southeast University
1.1Analysis of Financial Institutions:
Analyzing a financial institution is very different from analyzing a corporate entity. When a financial institution has liquidity problems, the end can be fast and furious. This two day class will cover the qualitative and quantitative analysis of financial institutions. Exercises and case studies are included.
1.2 Introduction:
One of the renowned names in Bangladesh financial market is financial institution Some financial institutions serve as pass through or agency institutions, where the risks and returns to clients depend primarily on the investment results of the institutions. Such institutions include mutual funds, hedge funds, REITs and defined contribution plans such as 401k plans. Other financial institutions serve as guarantors, or principal institutions, where the institutions offer a fixed return to clients and the institutions retain the actual risks and returns of their investments. This group includes commercial banks, Non- financial institution, insurance companies, sovereign funds and defined benefit pension plans. Leasing Company (IDLC) Limited. It started operation in the year 1985 as the pioneer leasing company as to facilitate lease- financing and capital investment in industrial sector, with the view of “Become the best performing and most innovative solutions provider in the country”. For introducing new multitude of diverse financial products and services in 2007 the company changed its name to IDLC Finance Ltd. Over the last two decades IDLC has contributed relentlessly in the country’s transition into a developing country and has emerged as Bangladesh’s leading multi product financial institution. The company now offers financial and technological solutions to both institutional and individual clients to cater for their unique requirement.
1.3 Origin of the report:
This term paper is a course requirement of “FIN-2122: Financial Management”. Our honorable course instructor assigned us the topic and the report was conducted on Financial Institution and IDLC finance Ltd. I am very glad to have his suggestion and guidelines in this regard. The report mainly focused on the Financial Institution and leasing company’s functions, source of fund, investment and rules and regulation regarding leasing company. But as Financial Institution analysis is one of the highest concerns of today’s financial institutions, we also focus on the Financial Institution Analysis of the firm.
1.4 Statement of the problem:
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This study arises from the need to know the financial institution analysis in the firm more effectively. The rapid growth of securities, financing company and Investments Company are really thinks about the financial institution. Now a days it is known that the financial institution analysis the organizational performance very well. In financial institution analysis there is lots of important thing. We can also be able to know that how these things are helping or be the independent variable of the knowledge sharing.
Accordingly, organization from different sectors, across industries and through different time periods should use these financial institution analysis tools. Nevertheless researcher has yet to examine in depth the probable influence of financial institution analysis of a firm in different conditions. However, the reason why individual employees decide whether to actively participate in financial institution analysis activities are currently not well understood. Therefore, this research aims to contribute to the general understanding of the barriers determining the success of financial institution analysis in organizations in general and to the organization under study in particular. “Knowledge is one of the few assets that grows also usually exponentially when shared financial institution analysis is believed to be one of the most important processes for financial analysis . Davenport and Prusak (2000) and Chua (2003), however, indicate that financial institution is analysis in organizations whether the process is deliberately managed or not. Junnarkar (1997) also supports this. View of readily established analysis communities within the organizational framework, even before management makes any kind of effort towards establishing them. Companies are seeking to implement special KM projects, which aim to establish an environment within organizations that will support the effective analysis creation, transfer and use (Davenport et al., 1998). All analysis management initiatives try to foster the sharing of knowledge, ideas, and experiences, in whatever form, among individuals or groups”, as Cabrera and Cabrera (2002) point out. Nevertheless, it is accepted that “willing to share participants” is the key factor for a successful implementation of any KM process (Koulopoulos and Frappaolo, 1999).
1.5 Objective of the study:
1.5.1 Broad Objective:
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1.5.2 Specific Objective:
2.1 Clarifying the Concepts:
A financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is
Term paper on Financial Institutions Analysis of IDLC Finance Page 8 Southeast University acting as financial intermediaries. Most financial institutions are regulated by the government. Broadly speaking, there are three major types of financial institutions:
1 Depositary Institutions : Deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies
2 Contractual Institutions: Insurance companies and pension funds; and
3 Investment Institutes: Investment Banks, underwriters, brokerage firms
Function: Financial institutions provide service as intermediaries of financial markets. They are responsible for transferring funds from investors to companies in need of those funds. Financial institutions facilitate the flow of money through the economy.
Standing settlement instructions: Standing Settlement Instructions (SSIs) are the agreements between two financial institutions which fix the receiving agents of each counterparty in ordinary trades of some type. These agreements allow traders to make faster trades since time used to settle the receiving agents are conserved. Limiting the trader to an SSI also lowers the likelihood of a fraud.
Regulation See also: Financial institutions in most countries operate in a heavily regulated environment as they are critical parts of countries' economies. Regulation structures differ in each country, but typically involve prudential regulation as well as consumer protection and market stability. Some countries have one consolidated agency that regulates all financial institutions while others have separate agencies for different types of institutions such as banks, insurance companies and brokers.
See also:
Ban Consumer Credit Act 1974 (UK law), Credit union, Financial economics Fractional- reserve banking, Full-reserve banking International financial institutions, Non-bank financial institution, Savings and loan association.
2.2Available Research:
2.2.1 Financial Institutions Research Project:
Financial intermediaries play a crucial role in channeling capital from investors to companies. We define financial intermediaries broadly, including not only commercial banks, but also
Term paper on Financial Institutions Analysis of IDLC Finance Page 9 Southeast University investment banks and providers of private equity and venture capital. Thus our research program focuses not only on ‘traditional’ banking questions, such as the regulation of commercial banks and the monetary transmission channels between the banking sector and the real economy, but also on the role and efficiency of investment banks and private equity funds in helping companies raise capital.
2.2.2 Expert Insight into Bank and Insurance Financial Strength:
As the scrutiny of banks has increased in the aftermath of the credit crisis, the ability to accurately assess the strength of banks and their security has become more important than ever. Moody's Investors Service Bank Research is designed to provide financial market participants with fundamental analysis and expert insight into bank credit risk.
2.2.3 Bryce W. Rowe, CFA ,Senior Research Analyst, Community Banks:
Bryce Rowe is Baird’s senior analyst covering Community Banks / Business Development Companies. Prior to joining Baird in 2006, Bryce held equity analyst positions at several regional brokerage firms with the most recent being Legg Mason. In 2011, Bryce was selected for The Wall Street Journal’s Best on the Street Analyst Survey for Commercial Banks and Savings & Loans, ranking No. 4, and his second recognition by The Wall Street Journal. He received a BA in Economics from the University of Virginia. Bryce Rowe is Baird’s senior analyst covering Community Banks / Business Development Companies. Prior to joining Baird in 2006, Bryce held equity analyst positions at several regional brokerage firms with the most recent being Legg Mason. In 2003, Bryce was selected for The Wall Street Journal’s Best on the Street Analyst Survey for Commercial Banks and Savings & Loans. He received a BA in Economics from the University of Virginia.
2.2.4 David A. George, CFA, Senior Research Analyst, US Banks:
David George is Baird’s senior analyst covering U.S. Banks. Prior to joining Baird in 2007, he was a senior analyst at A.G. Edwards & Sons, covering large- and mid-cap regional banks as well as the trust and processing banks. In 2004, he was named a Top 50 Analyst by Bloomberg Magazine, finishing first in stock selection in the Regional Bank category. He
Term paper on Financial Institutions Analysis of IDLC Finance Page 10 Southeast University also has seven years of experience in the banking industry, as he held senior commercial lending positions with both Fifth Third Bancorp and Huntington Bancshares. David received a BA in Sociology from the College of Wooster (Ohio).
Factors Rank
Location Convenience 1
Other Convenience Facto (such as parking, hours and the like) 2
Advertising 3
Bank Atmosphere 4
3.1What is Data? Data is a collection of facts, such as values or measurements. It can be numbers, words, measurements, observations or even just descriptions of things.
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3.1.1 Data can be qualitative or quantitative: A) Qualitative data is descriptive information (it describes something) B) Quantitative data is numerical information (numbers). Quantitative data can also be Discrete or Continuous: Discrete data can only take certain values (like whole numbers) Continuous data can take any value (within a range) Put simply: Discrete data is counted, Continuous data is measured Example: What do we know about Arrow the Dog?
Collecting: Data can be collected in many ways. The simplest way is direct observation. Example: you want to find how many cars pass by a certain point on a road in a 10-minute interval.So: simply stand at that point on the road, and count the cars that pass by in that interval. Census or Sample: A Census is when you collect data for every member of the group (the whole "population").A Sample is when you collect data just for selected members of the group. Example: there are 120 people in your local football club. You can ask everyone (all 120) what their age is. That is a census. Or you could just choose the people that are there this afternoon. That is a sample. A census is accurate, but hard to do. A sample is not as accurate, but may be good enough, and is a lot easier. Data or Datum: The singular form is "datum", so we would say "that datum is very high" "Data" is the plural so we can say "the data are available", but it is also a collection of facts, so "the data is available" is fine too.
3.2 Data source And information:
Two types of data Primary data and secondary data:
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What does each and every research project need to get results? Data – or information – to help answer questions understand a specific issue or support a hypothesis.
At the Institute for Work & Health, researchers conduct many projects each year. Some projects involve going into workplaces and asking workers questions. Researchers who do this have specific work-health questions in mind that they’d like answered.
The answers – or data – used from the responses are called primary data.
Other Institute projects involve using data that has already been gathered by someone else, such as survey information from the Canadian Census. Researchers then examine this information in a different way to find a response to their question. This data are called secondary data.
3.3 I collected the secondary data:
4.1 Company History and Background: IDLC financial Bangladesh’s pioneering leasing company was established in Dhaka in 1980. IDLC was formed through the collaboration of International Finance corporation (IFC), the private sector wing of the world Bank.
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German Investment and Development company (DEG) one of largest European development finance institutions and a member of KfW Bankengruppe Kookmin bank, one of the largest banks in South Korea Korea Development financing Corporation, one of the largest leasing companies in South Korea of the 1980s The Aga Khan fund for Economic Development, a leading international development agency The City Bank Limited, one of the oldest private Commercial Bank in Bangladesh IPDC of Bangladesh Limited, the first private sector financial institution in Bangladesh and Sadharan Bima corporation, the only state ownerd general insurance corporation in Bangladesh Today IDLC finance is the leading multi product Non Banking Finacial Institution in Bangladesh with 27 Branches and over 800 staff IDLC offers a wide range of loans .deposit and capital market products and service to the Corparate, Consumer and SME client segments. IDLC operates in the Capital market through its wholly owned subsidiaries IDLC investment Limited and IDLC securities Limited The IDLC group has always been a standard bearer for the financial sector in terms of corporate governance and statutory compliance. The group is also highly regarded for its professional pool of resource and progressive work environment. In 2010, the IDLC group committed to sustainable business by becoming a member of the Bangladesh CSR Centre, the United Nations Global Compact (UNGC), and finally, the United Nation Environment Programmed Finance Initiative (UNEP FI) IDLC received a long term rating of AA1 and short term rating of ST-1, as of June 30,2011
4.1.2 IDLC’s Vision, Mission and Strategic Objectives
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4.1.3 Our Corporate Philosophy: Discharge our functions with proper accountability for actions and results and bind ourselves to the highest ethical standards
4.1.4 Goal:
4.1.5 Strategic Objectives Q Grow and develop our talent pool; Q Fully leverage new core banking platform; Q Optimize distribution points; Q Grow and diversify funding sources; Q Grow sales and service capabilities in Consumer Division; Q Aggressively grow SME portfolio; Q Focus on top-tier clients in Corporate; Q Consolidate capital market operations and enhance capabilities; Q Embrace internationally accepted corporate governance and sustainable business practices.
4.1.6 Core Values
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4.1.7 Sector wise exposure – December 31, 2012:
4.1.8 SEGMENT, PRODUCT AND SERVICE:
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IDLC offers products under four major business segments Consumer, Corporate, Small and Medium Enterprise and Capital Markets.
Consumer Finance Deposit Schemes Cumulative term Deposit Monthly/ Quarterly/Annual Earner Deposit Double/ Triple Money Deposit Short-term Deposit Home Loan Car Loan Personal Loan Corporate: Corporate Finance Structured Finance Solutions:
Term Loan Fund-raising :\Loan\Leas\private placement of Equity Lease Finance Preference Share\Bond\Foreign-currency Loan Working Capital Finance Refinancing of special Funds Project Finance Refinancing and Special Funds Corporate Advisory Services 1) Project/infrastructure Finance 2) Advisory service 3) Structured Solution 4) Securitization of Assets Small and Medium Enterprise A} Small enterprise Finance B.1) Medium Enterprise Finance / SME Loan /Term Loan /Abashan Loan /Lease Finance /Seasonal Loan /Working Capital Finance /Project Finance Capital Markets /Specialized Product Portfolio Management B.2) Supplier Finance
/Discretion portfolio Management{MAXCAP} B.3) Women Entrepreneur Loan
/Margin Lending (Cop Invest) B.4)Commercial Vehicle Loan
Investment Banking (IPO,RPO Bond Issuance, Rights, Rights shares ,offering, Corporate Advisory ect) Research Brokerage Services
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4.1.9 KEY FINANCIAL OF IDLC GROUP:
4.1.10 AWARDS AND ACHIEVEMENTS: SAFA (South Asian Federation of Accounts) Beast Presented Account Awards SAFA Beast Presented Accounts Award 2005,2006,2007,2009 and 2010
ICAB (The Institute of Cost and Management Accountants of Bangladesh) Awards A} ICMAB Beast Corporate Award 2010 B} ICMAB Beast Corporate Performance Award 2008 C} ICMAB National Beast Corporate Award 2007 “COMMWARD Excellence in Communication 2009” and “Superbrands” recognition in 2009
4.2 Definition of 'Ratio Analysis:
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A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.
4.2.1Types of Ratio and Categories of Financial Ratios:
Liquidity Measurement Ratios 4) Operating Performance Ratios a)Current Ratio ) Fixed Asset Turnover b) Quick Ratio b) Sales/Revenue Per Employee c) Cash Ratio c) Operating Cycle d) Cash Conversion Cycle 5) Cash Flow Indicator Ratios a) Operating Cash Flow/Sales Ratio 2) Profitability Indicator Ratios b) Free Cash Flow/Operating Cash Ratio a) Profit Margin Analysis c) Cash Flow Coverage Ratio b) Effective Tax Rate d) Dividend Payout Ratio c) Return On Assets d) Return On Equity 6) Investment Valuation Ratios e) Return On Capital Employed a) Per Share Data b) Price/Book Value Ratio 3) Debt Ratios c) Price/Cash Flow Ratio a) Overview of Debt d) Price/Earnings Ratio b) Debt Ratio e) Price/Earnings To Growth Ratio c) Debt-Equity Ratio f) Price/Sales Ratio d) Capitalization Ratio g) Dividend Yield e) Interest Coverage Ratio h) Enterprise Value Multiple f) Cash Flow To Debt Ratio
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Financial Performance 2007 2008 2009 2010 2011 Growth %
4.2.2 Key Operating and Financial Highlights – Group:
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Lease and Term loans disbursed 2,977 3,412 3,750 4,345 8,517 96.03%
Housing finance disbursement 1,255 1,612 1,839 2,121 2,586 21.90%
Short term finance portfolio 213 336 317 468 821 75.61%
Lease Finance 4,571 4,734 4,383 4,107 4,547 10.72%
Real estate finance assets 3,065 3,915 4,789 5,605 6,979 24.52%
Total assets 15,056 17,342 22,681 26,930 31,165 15.72%
Long term liabilities 11,103 12,115 18,792 21,745 25,299 16.34%
Term deposit balance 8,257 8,249 9,780 12,373 16,828 36.01%
Net current assets 1,401 1,559 3,645 4,172 3,676 -11.88%
Operational Performance
Operational income 883 1,179 1,913 3,047 2,160 -29.11%
Operational expenses 272 352 490 966 913 -5.43%
Financial expenses 1,246 1,553 1,687 1,822 2,364 29.76%
Profit before tax 475 708 1,273 1,956 1,217 -37.81%
Net profit after tax 303 406 822 1,327 500 -62.30%
Average effective tax rate 36.08 42.57 35.46 32.16 58.88 83.08%
Financial Ratio
Debt equity ratio (Times) 9.54 8.32 8.48 6.30 6.83 8.44%
Financial expenses coverage ratio (Times) 1.38 1.46 1.75 2.07 1.51 -26.96%
Current ratio (Times) 1.20:1 1.21:1 1.04:1 1.39:1 1.31:1 -0.08%
Return on total assets (%) 2.37 2.50 4.11 5.35 1.72 -3.63%
Nonperforming loan ratio (%) 5.96 3.97 3.43 2.84 2.32 -0.52%
Return on shareholders’ equity (%) 27.59 28.43 41.05 43.64 13.04 -30.60%
Earnings per share* (BDT) 3.06 4.10 8.30 13.41 5.05 -62.30%
Dividend per share 4.00 3.50 11.00 10.00 2.50 -75.00%
Price earnings ratio (Times) 49.63 55.76 44.60 34.67 27.41 -20.96%
Dividend yield (%) 2.63 1.53 2.97 2.15 1.81 -0.34%
Dividend payout ratio (%) 26.40 21.55 40.14 45.21 49.47 4.26%
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Equity Statistics
Number of shares (No.) 2,000,000 2,500,000 3,000,000 6,000,000 99,000,000 1550.00%
Year end market price per share (BDT) 1,519.00 2,289.00 3,703.00 4,648.00 138.50 -97.02%
Net asset value per share (BDT) 12.60 16.28 24.17 37.27 40.21 7.87%
Market capitalization 3,038 5,723 11,109 27,888 13,712 -50.83%
Market value addition 139.30 212.62 346.13 427.53 98.29 -77.01%
Shareholders' equity 1,247 1,611 2,393 3,690 3,980 7.87%
4.2.3 Non performing lone Ratio: NPL is the nonperforming loans ratio. Analysts use this ratio to compare lenders. If a lender has a high NPL ratio, the lender will have difficulties with cash flows. This is because many of the loans the company holds have a high probability of not being paid back. If a lender does not receive a return of his principal on the loan, he will lose money. The higher the NPL, the more likely this happens.
Formula:
Divide by the total loan amount to calculate the NPL ratio. In the example, $10,000 divided by $100,000 equals 0.1. Multiply the decimal by 100 to get 10 percent.
Non performing lone Ratio of IDLC Finance (2010) = 2.84%
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Non performing lone Ratio of IDLC Finance (2011) = 2.32%
4.2.4 Debt to equity ratio : The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed.
Formula:
Debt to equity ratio of IDLC Finance (2010) = 6.30 Times
Debt to equity ratio of IDLC Finance (2011) = 6.83 Times
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4.2.5 Earnings per share: EPS represents the number of dollars earned during the period on behalf of each outstanding share of common stock. Earnings per share is calculated as follows: Formula : Earningsavailable for common stockholders Earnings per share Number of sharesof common stock outstan ding
EPS of IDLC Finance BDT (2010) = 13.41 EPS of IDLC Finance BDT (2011) = 5.05
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4.2.6 Dividend per share Dividends Per Share (EPS) - Dividends per share represents the cash (or property) paid on each share of outstanding common stock. Dividends per share do not represent the amount of profit earned per share of stock (EPS). When calculating dividends per share all you need to do is divide dividends paid by the number of common shares outstanding. The formula for is:
Dividend per share of IDLC Finance (2010) = 10.00 Dividend per share of IDLC Finance (2011) = 2.50
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4.2.7 Price Earnings Ratio: The price earnings ratio (P/E) is the best known of the investment valuation indicators. The P/E ratio has its imperfections, but it is nevertheless the most widely reported and used valuation by investment professionals and the investing public. The financial reporting of both companies and investment research services use a basic earnings per share (EPS) figure divided into the current stock price to calculate the P/E multiple (i.e. how many times a stock is trading (its price) per each dollar of EPS).
Formula:
Price Earnings ratio of IDLC Finance (2010) = 34.67 Times
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Price Earnings ratio of IDLC Finance (2011) = 27.41 Times
4.2.8 Return on total Assets: Return on Total Assets (ROA): Return on total assets (ROA) Measures the overall effectiveness of management in generating profits with its available assets; also called the return on investment (ROI). The return on total assets is calculated as follows
Formula: Earningsavailable for common stockholders Return ontotal assets Total assets
Return on total Assets of IDLC Finance (2010) = 5.35 %
Return on total Assets of IDLC Finance (2011) = 1.72 %
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4.2.9 Return on shareholder’s equity: Measures the rate of return the shareholders receive on their investment in your business. Net Income for the Year is after taxes and interest because the shareholders are only entitled to the balance.
Formula:
Return on shareholder’s equity of IDLC Finance (2010) = 43.64% Return on shareholder’s equity of IDLC Finance (2011) = 13.04 %
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4.2.10 Current Ratio The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities.
Formula:
Current Ratio Analysis of IDLC Finance (2010) = 1.39:1 times Current Ratio Analysis of IDLC Finance (2011) = 1.31:1 times
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5.1 Summary of major findings:
5.1.1 Non performing lone Ratio: Here we can see that non performing loan ratios are decreasing each year. And in 2011 it is 3.07 % which is a good sign for IDLC Finance ltd. The ratio of nonperforming loan has been further reduced from 4.5% in 2009 and 3.62 % in 2010 to 3.07% in 2011, mainly through strengthening of the credit and collections teams and relevant process. IDLC has continued with its prudential policy of building adequate provision for doubtful accounts and future losses. 5.1.2 Debt to equity ratio: IDLC finance limited is a strong equity based company. Emerging Credit Rating Agency of Bangladesh rated IDLC in long term rating at “AAA” and sort term rating as “ST -1”. Institution rating in this category characterized with excellent position. As in December 31, 2011 total equity of IDLC finance stands at BDT 3690 million and 2010 it was BDT 2393 million. This means the company has a strong equity against its debt. And the graph also shows that the ratio of debt to equity ratio is decreasing in each year. And that is a good sign for the company to meet its obligation. The company’s equity had increased by 54% over the previous year. 5.1.3 Earnings per share:
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The company believes that superior service, diversification of client segment and business strong risk management, performance focus, ensuring sustaining financial performance and those results an increasing rate of earning per share. This graph shows every year this rate is increasing. Consorted earning per share grew by 61% to BDT 221.8 compared to previous year. 5.1.4 Dividend per share: IDLC finance has been paying dividend consistently to its shareholders over the years. But they pay dividend randomly according to their business policy.This graph highlights their dividend payment per share. Moreover the company has paid 110% in 2010 and 100 % in 2011. 5.1.5 Price earnings ratio: Price earnings ratios are 21.01 that indicate a good sign for the company. We know that lower price earnings ratio means earring per share is more than the market value of the company. In 2011 IDLC Finance has decreased by 6.02% against 2010. 5.1.6 Return on total assets: The return on asset ratio of IDLC finance ltd also improved in 2011 over other four years. That we can see on this graph and the annual report of 2011. The ROA increased means the net income also increased and in 2011 their return on asset is 5.35 with a growth of 1.24%. 5.1.7 Shareholder’s equity: This graph shows that shareholders equity in 2011 is BDT 3690 million with a growth of 54 percent against BDT 2393 in the 2010. This table also shows the share holder’s equity was in a steady growth 2007 to 2008. And the growth rate 2008 to 2009 was reduced against 2007 to 2008. But from 2009 it is again with positive growth. 5.1.8 Current Ratio: The current ratio of IDLC finance in 2011 is 1.39:1 with a growth of .35 times. IDLC has a optimum current ratio over the last few years. It means the company has the ability to face its short term liabilities successfully with their short term asset.
5.2 Recommendations:
5.2.1 SOME OF THE RECOMMENDATIONS THAT I WOULD LIKE TO PROPOSE ARE:
COMPETITIONS AND PRODUCT DIVERSIFICATION
Investment banks in Bangladesh are operating in a highly competitive environment. The competition for them is even more challenging as they have to compete with banks. Given the changes in the business environment, the need for product diversification is very important. The remaining part concentrates mainly on term financing and housing finance.
Investment banks should venture into diversified use of their funds such as investment banking, venture capital financing, factoring, etc. for a healthy growth of the capital market.
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5.2.2 ENHANCING CAPITAL MARKET ACTIVITIES: Investment banks around the world carry out a significant role in the development of the capital market. Strong institutional support is necessary for a vibrant capital market which is the core of economic development in any market based economic system. Active participation of investment banks is essential to accelerate the capital market activities which can expedite the economic growth of the country. The success of investment banking operations is largely linked to the development of the security market. 5.2.3 RECOMMENDATIONS TO OFFER EVEN BETTER SERVICES In addition to portfolio management, which is the core services offered by the investment banks in our country, there are other valuable services that they can offer to attract a larger customer and to reduce the risk of losing out customers to the competitors. If we consider the level of grasp of the knowledge of our population, then it become quite apparent that why instigating programs to educate our clients can give our investment banks competitive edge over others, if not prove out to be a major differentiating factor. Not only can that, educating the clients also open up new dimensions to do business with the clients by creating demands in them. Though merger and acquisition yet not proved to be so affordable and also profitable move in our country’s perspective, but ignoring this sector will not be wise enough if our investment banks are aiming at long term customer hold. So, the quicker investment banks address this issue, the better it may prove out for them.
5.2.4 Operating income:
Above table shows in Each year their operating income growth increased rapidly. In 2011 operating revenue grew 58% to reach BDT 3027 million against the year 2011.Though the amount of BDT million increase in 2011 but the growth shows that there is negative growth in percentage in 2010 to2011, here the growth is 58% but the previous year growth is 62% which indicated that the operating expenses also increased. So the company should try to reduce their operating cost expenses.
5.2.5 Total asset:
IDLC consolidated asset at 2011 year end stood at BDT 26.9 billion a 19 % growth over 2010. An aggressive deposit program was initiated in the second half of 2011 and by year end. So from the above table I can say they has a optimum level of asset.That means they have the ability to meet its long term as well as short term obligations with adequate asset.
5.2.6 Profit:
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In 2011 IDLC Financed Limited posted an operating profit of BDT 1956 million as against BDT 1273 million in 2010 with a spectacular growth of 53.65 percent over thepreceding year. After having made necessary provisions for loans and advances, accordance with the instruction of Bangladesh bank net income before tax (NIBT) stood at BDT 1327million in the year under review against TK 822 million in the preceding year registering a growth of 61.47 percent.
5.2.7 Shareholder’s equity
This above table shows that shareholders equity in 2011 is BDT 3690 million with a growth of 54 percent against BDT 2393 in the 2010. This table also shows the share holder’s equity was in a steady growth 2007 to 2008. And the growth rate 2008 to 2009 was reduced against 2007 to 2008. But from 2009 it is again with positive growth.
5.2.8 Major Risks at IDLC: Major risks that IDLC identifies detrimental to its return and market reputation is as follows:
5.2.8 .1Credit Risk: Credit risk is the possibility that a borrower or country party will fail to meet agreed obligations. Thus managing credit risk for efficient management of a financial institution (FI) has become the most crucial task. Given the fast changing, dynamic global economy and the increasing pressure of globalization, liberalization , and consolidation it is essential that FIs have robust credit risk management policies and producers those are sensitive and responsive to these changes. At IDLC, credit risk may arise in the following forms:
Default risk ,Exposure risk, Recovery risk, Country party risk, Related party risk, Legal risk, Political risk
5.2.8 .2 Market Risk:
Market risk refers to the risk of fluctuation in a variety of markets such as interest rates, prices of securities where the values of assets and liabilities can change and there exists the risk of incurring losses.
5.2.8 .3 Liquidity Risk
Liquidity risk arises when a company is unable to meet the short term obligation to its lenders and stakeholders. This arises from the adverse mismatch of maturities of assets and liabilities.
5.2.8 .4 Operational Risk
Operational risk is the potential loss arising from a break down in company’s system and producers, internal control, compliance requirements or corporate governance practices that results in human error, fraud, failure, damage of reputations, delay to perform or compromise of the company’s interests by employees.
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5.3 Concluding:
The importance of sustaining and improving Financial institution and performance are increasing day by day particularly in an environment which is characterized by rapidly flourishing technology and its growing application to banking and non banking financial institution tremendous competition, product development, shift in marketing strategy, deregulation & globalization on the one hand, and escalation in the number of bank failures accompanied by mergers and mega mergers on the contrary. In order to keep abreast with the prevailing market scenario it is necessary to develop a comprehensive financial institution evaluation system.
Institutions Evaluation System means a mechanism for improving the likelihood of the organization successfully implementing its strategy. It is a process to have the goal of
Term paper on Financial Institutions Analysis of IDLC Finance Page 34 Southeast University strategy implementation. In this process senior management selects a series of measures that best represent the organization’s strategy.
The current report aimed at critically examining the Institution Analysis of a private financial institution. The main objective of this report was to Institution of financial analysis of IDLC finance ltd. along with how efficiently are providing services to its customer. From Financial Analysis it has been seen that the financial institution of IDLC finance ltd is really satisfactory.
6.1 BIBLIOGRAPHY 1. Annual Report from 2011 and 2010. 2. Web Site of IDLC-Retrieve from www.idlc.com 3. Financial institution - Wikipedia, the free encyclopedia 4. Brochures of IDLC Finance Limited.
5. www.investopedia.com/terms/f/financialinstitution.asp
6. Financial Institutions of Bangladesh - Travel One BD
7. Banks in Bangladesh: List of Financial Institutes in Bangladesh
8. Non-bank financial institution - Wikipedia, the free encyclopedia
9. http://www.assignmentpoint.com/tag/internship-report
10. The_IDLC_Group_Corporate_Profile .pdf
11. Non-Bank Financial Institutions - World Bank
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12. Financial and Private Sector Development - Non-Bank ... - World Bank
13. Analysis of Financial Institutions - Financial Training Course
14. Credit Analysis of Financial Institutions, Second Edition - Waylon
15. www.kesdee.com/pdf/financialanalysis.pdf
16. ro.uow.edu.au/cgi/viewcontent.cgi?article=1030&context.
17. Financial institution Financial Statement Analysis
18.Fundamentals of Bank Financial Statement Analysis
19.Bank Financial Statement Analysis & Ratio Analysis
20.ro.uow.edu.au/cgi/viewcontent.cgi?article=1029&context...
21.Credit Analysis of Financial Institutions, Second Edition – Waymond
6.2APPENDIX 6.2.1 List of Abbreviations CDBL Central Depository of Bangladesh CSD Customer Support Desk CSE Chittagong Stock Exchange DGEN DSE General Index DSE Dhaka Stock Exchange Limited FI Financial Institution ICB Investment Corporation of Bangladesh IPO Initial Public Offering NBFI Non-Banking Financial Institution OTC Over the Counter Market PIPE Private Investment in Public Equities RPO Repeat Public Offering SEC Securities and Exchange Commission
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