Lankabangla Project by Minhaz PDF

Preview

Summary

Essay on financial health of Lankabangla...

Description

CHITTAGONGINDEPENDENTUNIVERSITY PROJECT ON:

An Analysis of Financial Management of Non Bank Financial Institutions (NBFI) In Bangladesh: A Study on LankaBangla Finance Limited SUBMITTED TO: Dr. Syed Manzur Quader CIU Business School SUBMITTED BY:

Md. Minhaz Uddin ID: 19151003 Course Title: Financial Management Code: MBA 531

DATE OF SUBMISSION:

21 August, 2020.

1

An Analysis of Financial Management of Non-bank Financial Institutions (NBFI) in Bangladesh: A Study on Lanka-Bangla Finance Limited

2

Table of Contents CHAPTER 1INRODUCTION................................................................................................................4 Introduction...............................................................................................................................................5 Background of LBFL...............................................................................................................................6 Mission.......................................................................................................................................................7 Core Values................................................................................................................................................7 Share - Holding Pattern Analysis............................................................................................................8 Chapter 29 Corporate Governance & CSR Activities of Lankabangla Finance Limited.....................................9 Corporate Governance............................................................................................................................10 Corporate Governance Structure...........................................................................................................11 CORPORATE SOCIAL RESPONSIBILITY (CSR) OF LANKABANGLA...........................12 Risk Management...................................................................................................................................13 Risk Management in LankaBangla.......................................................................................................14 Financial risk management........................................................................................................14 Credit risk...................................................................................................................................15 Exposure to credit risk:..............................................................................................................15 Liquidity risk..............................................................................................................................15 Market risk.................................................................................................................................15 Interest Rate Risk.......................................................................................................................16 Chapter 4........................................................................................................................................17 Investment Profile...................................................................................................................................17 Investment Profile of Lankabangla:......................................................................................................18 Investment Income..................................................................................................................................19 Chapter 5..................................................................................................................................................21 Performance Analysis through Financial ratios...................................................................................21 Liquidity Ratios.......................................................................................................................................22 Solvency Ratio or Financial Leverage Ratio.......................................................................................23 4

Debt to Equity Ratio:.................................................................................................................23 Equity Ratio:............................................................................................................................................25 Profitability Ratios:.................................................................................................................................28 Profit Margin..............................................................................................................................28 Return on asset or ROA.............................................................................................................29 Return on Equity or ROE...........................................................................................................29 Market Prospect Ratios..........................................................................................................................30 Earnings per share or EPS..........................................................................................................30 Chapter 6..................................................................................................................................................32 Profitability and Performance Analysis of LBFL Compared to its Peers.........................................32 Overview of the selected Banks............................................................................................................33 Return on Equity:....................................................................................................................................34 Net Profit Margin-......................................................................................................................34 Earnings Per Share-....................................................................................................................35

5

CHAPTER 1 INRODUCTION

6

Introduction Merchant Banking is a combination of Banking and consultancy services. It provides consultancy, to its clients, for financial, marketing, managerial and legal matters. Consultancy means to provide advice, guidance and service for a fee. It helps a businessman to start a business. It helps to raise (collect) finance. It helps to expand and modernize the business. It helps in restructuring of a business. It helps to revive sick business units. It also helps companies to register, buy and sell shares at the stock exchange. According to Investopedia, a bank that deals mostly in (but is not limited to) international finance, long-term loans for companies and underwriting. Merchant banks do not provide regular banking services to the general public. According to the US Federal Deposit Insurance Corporation (acronym FDIC), "The term merchant banking is generally understood to mean negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies." In banking, a merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and wealthy individuals on how to us their money. The term can also used to describe the private equity activity of banking[ CITATION Jef02 \l 1033 ]. Investment Banking is an American synonym of merchant banking. Investment banks provide advice on mergers and acquisitions and are involved in financing industrial corporations through buying shares and selling them in relatively small lots to investors. In the context of Bangladesh, merchant banking includes all financial institutions that combine the functions of both development banking and investment banking.

7

Background of LBFL

Two decades back LankaBangla Finance Limited started its journey in 1997 as a joint-venture financial institution in multinational collaboration with a license from Bangladesh Bank under Financial Institution Act-1993. Today, LankaBangla is the country’s leading integrated financial services provider that include Corporate Financial Services, Retail Financial Services, SME Financial Services, Liability Management, Stockbroking, Corporate Advisory and Wealth Management Services LankaBangla has implemented business process re-engineering to build capacity for its clients’ superior service experience. The company now operates from a centralized administrative framework through cutting edge technological environment. LankaBangla is fueling a wide operational periphery covering major business hubs of the country. Under a wide umbrella of products and services, LankaBangla is the only financial institution to operate credit card (Master and VISA) and also provide third party card processing services to different banks in Bangladesh. LankaBangla is the market leader in the capital market services and has been giving an all-out effort to develop an efficient, vibrant and transparent capital market in Bangladesh. Its subsidiary, LankaBangla Securities Limited is providing top-notch brokerage services and leading the industry with cutting edge trading, top rated research information, and customer service. The group has another subsidiary, LankaBangla Investments Limited. It is a premier investment bank in the country providing corporate advisory, issue management, and portfolio management services. LankaBangla Asset Management Company Limited is providing professional wealth management services to some of its customers. In quest of sustainable business, LankaBangla is positioning itself to provide enduring value to the people, customers, shareholders and the communities. There are other key divisions involved in setting up strategic priorities and upholding the living standard of our community. These divisions are involved among many others in prudent balance sheet management operation and maintenance of a strong IT infrastructure and recruiting as well as nurturing topnotch human resources. 8

LankaBangla practices participatory management and adheres to industry’s best practices in all its endeavors. Increasing stakeholders’ value is a natural driving force for the people at LankaBangla. It dreams to go further and grow bigger. Its ethos is simple. The company envisions its success lies in becoming the growth partner of its enterprising clients. LankaBangla is committed to empowering lives and inspire changes in community. Lanka Bangla also has four subsidies companies: • Lanka Bangla Securities Limited. • Lanka Bangla Investments Limited. • Lanka Bangla Asset Management Company Limited • Lanka Bangla IT Investment Limited.

Mission • Be a growth partner for our customers, ensuring financing and superior experience. • Maintain a culture of meritocracy in the DNA of the company. • Be sustainable and ensure quality returns to our valued shareholders. • Uphold efforts to develop our community.

Core Values LBFL has strong values that are well embedded in our culture.Our values create the following goals to help us deliver our strategy: • Cherish a sense of ownership • Be customer centric • Grow as a team • Act with Integrity and Professionalism • Deal with respect. 9

Share - Holding Pattern Analysis

shares is being held by the sponsor director

Shareholding Structure of LB

of the company and rest 61.23% which is equal to 340,973,865 shares is being

9.47%

regularly traded among the general public

Foreign Sponsors and/or di rectors

24.09% Local Sponsor and/or directors

66.44%

people.

The

government

holding

and

institute investors have no shares in their name. Though it is not a good sign for the company that institutional investors are

General Shareholders

reluctant to invest in this company but the company is fundamentally very strong. Because of the excessive public holding the

Out of 513,179,641 shares 33.56% of shares

share price fluctuation is very high of LBFL.

which is equal to 172,205,776 numbers of

Sponsors

% of Shareholding

a. Foreign Sponsor

Sampath Bank Ltd, Srilanka

9.47%

b. Local Sponsor

One Bank Ltd. Bangladesh

3.78%

Individuals

20.31%

Sponsors and/or directors

33.56%

Total

10

Chapter 2 Corporate Governance & CSR Activities of Lankabangla Finance Limited

11

Corporate Governance Corporate Governance is the system by which a Company is directed, controlled and managed. In LankaBangla Finance Limited (LBFL), the Corporate Governance Framework guides our drives towards progress by way of developing and implementing appropriate corporate strategies. The approach to governance is predicated on the belief that there is a link between high-quality governance and the creation of long-term stakeholder value. In pursuing the Corporate Objectives, we have committed to the highest level of governance and strive to foster a culture that values and rewards exemplary ethical standards, personal and corporate integrity and mutual respect. The Board of Directors, led by the Chairman, is responsible for the governance of LBFL, and developing effective Governance Framework to meet challenges, both in the short and long term. The Board is committed to reviewing and improving our systems to provide transparency and accountability, and initiate transformational changes whenever necessary to ensure best practices are maintained and enhanced according to the principles of Corporate Governance. Governance Processes Board Composition and Frequency: The present Board comprises of nine non-executive directors of whom four are nominee directors and two are independent directors Selection and Term of Appointment of New Director The Directors are appointed by the shareholders in the Annual General Meeting (AGM). Casual vacancies, if any, are filled by board in accordance with the stipulation of the Companies Act 1994 and the Articles of Association of LankaBangla Finance Limited Separation of the role of Chairman and the Managing Director: At LankaBangla, in accordance with the DFIM Circular No. 07, dated 25-09-2007, a clear division of responsibilities between The Chairman and The Managing Director, allows the Chairman to assume the formal role of an independent leader that chairs all Board meetings and lead the Board in its oversight of management. At annual general meetings and other shareholder meetings, the Chairman plays a 12

pivotal role in fostering constructive dialogue between shareholders, the Board and management. Any questions from shareholders are attended to and addressed at such shareholder meetings

Corporate Governance Structure

BS oh aa dr oe Dh ro cl od re r s

rr f i e t s

13

CORPORATE SOCIAL RESPONSIBILITY (CSR) OF LANKABANGLA Corporate Social Responsibility of LankaBangla is a form of corporate self-regulation integrated into our business model based on the objective of good business for good society. LankaBangla in its core management concept and corporate responsibility integrated CSR with focus on social and environmental concerns in all business operations and interactions with its stakeholders. LankaBangla believes to achieve a balance of economic environmental and social imperatives (“Triple-Bottom-LineApproach”) besides safeguarding interest of stakeholders.We have also considerably achieved efficient business operations and conscience corporate governance and compliance to facilitate smooth and effective business. As a result we have been able to contribute for our sustainable society. LankaBangla through its Foundation has extended its support for the underprivileged people of the community in particular to ensure their education, health and living. Reh abilitatio n Pr ogram & E cono mic Supp ort t o Flo od a ffect ed pe ople

Emp owering Fema le Stu de nt

CSR activitie s of Lanka bang la

Tree Plant ation

Sup ortin g Edu cation

Risk Profile of Lankabangla

14

Chapter 3 Risk Management

15

Risk Management in LankaBangla

We believe that sound risk management is essential to ensuring success in our risk-taking activities. Our philosophy is to ensure risks and returns remain consistent with our established risk appetite. To achieve this, we regularly refine our risk management approaches to ensure we thoroughly understand the risks we are taking to identify any emerging portfolio threats at an early stage, and to develop timely and appropriate risk response strategies.

Financial risk management The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The Company's risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies, procedures and systems are reviewed regularly to reflect changes in market conditions and the Company's activities[ CITATION Rob94 \l 1033 ]. The company has exposure to the following risks from its use of financial instruments: * Credit risk * Liquidity risk * Market risk

16

Credit risk Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the company's receivables from customers.

Exposure to credit risk: The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:Figures in BDT Million 2018 Margin loan

1,538,262,645

Investments Receivable from group entities (LBSL) Other receivables Cash and cash equivalents

2017

1,915,459,376

765,010,436

669,942,537

6,880,901

78,040,781

47,605,183

42,427,463

289,096,256237,698,683

2,646,855,421 2,943,568,841

Liquidity risk Liquidity risk is the risk that the company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity (cash and cash equivalents) is toensure, as far as possible, that it will always have sufficientliquidity to meet its liabilities whendue, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. Typically, the Company ensures that it has sufficient cash and cash equivalents to meet expected operational expenses, including financial obligations through preparation of the cash flow forecast, prepared based on time line of payment of the financial obligation and accordingly arrange for sufficient liquidity/ fund to make the expected payment within due date.

Market risk Market risk is the risk that any change in market prices, such as interest rates and capital market condition will affect the Company's income or the value of its holdings of financial instruments.

17

The objective of market risk management is to manage and control market risk exposures within acceptable parameters. The risk of exchange rate movements does not impact LBFL directly because as a NBFI, LBFL cannot deal with foreign currency. Interest rate risk, being a significant risk factor for the industry, is managed closely by the Company, to ensure there are no erosion of spreads and no impact to final profi...