In this Section
The Board of Directors of International Leasing And Financial Services Limited have the pleasure in presenting the Directors’ Report in regard to the Companies Act, 1994 and guidelines issued by the Bangladesh Securities and Exchange Commission (BSEC), the Bangladesh Bank and the Bangladesh Accounting and Financial Reporting Standards.
This Directors’ Report has been prepared in compliance with the Section 184 of the Companies Act 1994, the Listing Regulations of Stock Exchanges, Financial Institutions Act 1993, Bangladesh Bank guidelines and other applicable rules and regulations. Relevant disclosures and explanations relating to company’s matter that have been given by the Directors, which they consider relevant and important to ensure compliance, transparency and good governance practices.
Economic Performance of Bangladesh
The Bangladesh economy has emerged as one of the resilient developing economies in the world. The economy grew at an average rate of 6.20 percent over the last decade (FY2005-06 to FY2014-15). According to the final estimate of BBS, the economy grew by 7.11 percent, a 0.56 percentage point pick up from 6.55 percent of previous fiscal year. The per capita national income reached US$1,465 in FY2015-16,up by US$149, from US$1,316 of previous year. Likewise, per capita GDP reached US$1,385 in FY2015-16, from US$ 1,236 a year earlier
According to the final data released by Bangladesh Bureau of Statistics (BBS), Bangladesh achieved 7.11 percent GDP growth in FY2015-16. The GDP growth was 6.55 percent and 6.06 percent in FY2014-15 and FY2013-14 respectively. This is the first time that the GDP growth has surpassed the 7 percent level. However, in FY2006-07, GDP growth crossed 7 percent mark due to the rebasing of GDP series on FY2005-06 base. Despite the global financial crisis and its afterermath,along with the adverse effect emerged from domestic front,Bangladesh has been able to achieve GDP growth at more than 6 percent on an average during the last decade
Production based estimate of GDP encompasses the value addition of 15 sectors. Some of the sectors are further divided into different sub sectors. All the 15 sectors are grouped into three broad sectors- agriculture, industry and service. The growth rates of GDP by sectors at constant prices have been shown in following picture:
Budget for FY’ 2017 has been marked high ambition with a vision of attaining the middle income goal. The budget size is BDT 3,406.00 billion which is 15% higher compared to FY’2016’s revised budget. It has revenue target of BDT 2427.00 billion which is 16% higher than that of the FY2016’s revised budget. Gross Domestic Product (GDP) has been estimated to grow at a rate of 7.2% in FY’2017, a slight increase from the previous year’s target of 7.05%. Budget deficit is projected to be BDT 917.7 billion. Of this deficit, BDT 610 billion will be collected from bank borrowing, savings certificates and other non-banking source and remaining BDT 307.7 billion will be raised from external sources. High dependence on savings certificates in financing the deficit may cause the interest expense to rise higher.
Falling commodity prices on the global market has been pushing inflation downward. The declining trend of inflation that started in 2015 and prevailed through 2016. Average inflation stood at 5.5% in Dec’2016 which was 6.2% in the same period in 2015. Food inflation started to decrease rapidly from the stating of 2016 but formed a positive trend from June 2016. As of Dec 2016, Point to point (P2P) inflation stood at 5.0%, the lowest since Sep’12. The decline in average inflation is mainly attributable to the falling food prices during the first half of the year and falling non- food inflation during the latter half of the year.
Foreign Exchange Reserve
Foreign exchange reserve has continued its increasing momentum in 2015-16. Foreign exchange reserve has reached a peak of USD 30.14 billion in June 2016, which is around 20.4% higher than last year’s reserve of USD 25.03 billion. Increased participation in world export, stable FDI & FPI made it possible for the country to accumulate such reserves. However, BDT has weakened in the latter half of FY’2016 against USD driven by falling remittance. In addition, higher import payment obligation during the end of FY2016 added to the situation
The money market also went through significant change in 2016. Overall interest rates received significant fall.Government bond operation was suspended for a couple of months. Reverse repo operation was reduced with higher borrowing through low yielding BB-bill. Bangladesh Bank will maintain accommodative monetary policy stance in 2016. The latest MPS for H2 FY2016 was a very growth supporting one. Policy rates have been reduced by 50 basis points after almost 3 years. This, coupled with the huge excess liquidity in the banking system is expected to further reduce banks’ lending rates and boost investments. As the economy is on the way to recovery, credit growth has been slowly picking up. During FY2015, the total credit to the private sector recorded 13.2% growth year over year.Business confidence is improving and the stable exchange rate has led to higher import of machineries. The falling interest rates will boost private credit growth next year.
Capital Market Review
The capital market ended 2016 with hope and aspiration, as the index recorded an almost 9 percent gain in the course of the year. A consistent rally, especially in the last two months of the year, enabled the key index of the premier bourse to stay above the 5,000 points level, yielding an 8.8 percent return for this year. DSEX, the key index of the Dhaka Stock Exchange, closed the year with 5,036 points on the last trading of 2016, up from 4,624 points on the first trading day of the year.
Active participation of local and foreign investors and the psychological confidence were the main drivers of the market. The market was consolidating round the year but the momentum picked up in the last three months and crossed the psychological barrier of 5,000 points. Strong investor participation in the last quarter, consolidation of stocks prices, comparably high corporate earnings, low commodity and oil prices in the international market along with low interest rate were the pivotal reasons behind the decent year for the Bangladesh capital market. The foreign investors have higher exposure now than ever before. The data and trading patterns reveal that most were in a buying mood rather than selling: they bought shares worth Tk 5,057 crore and sold shares worth Tk 3,716 crore to take their net investment to Tk 1,341 crore at the end of last day’s trade. It can be reasonably expected that going forward in 2017,interest in the Bangladesh capital market will increase, as it presents an attractive case for foreign investors.
NBFIs Performance in 2016
Non Bank Financial Institutions (NBFIs) have emerged as an important segment of financial system in Bangladesh. NBFIs offer diversified financial services mostly long-term in nature to cater the ever changing demands of customers. NBFIs play crucial roles in providing additional financial services that cannot be always met by the banks. Bangladesh Bank issues licence and supervises NBFIs under the Financial Institution Act, 1993. At present, the minimum paid up capital for NBFIs is Taka 1.0 billion as per the Financial Institution Regulation, 1994. NBFIs' business line is narrow in comparison with Banks in Bangladesh. NBFIs have been allowed to offer term deposit service for tenure of at least three months effective from 2 December 2013. Presently, out of 33 NBFIs, three are Government-owned, 11 are joint venture and the rest 19 are locally private-owned.Meanwhile, the branch network increased to 220 as on 30 June 2016.
ILFSL’s Operational Review of 2016
Riding on relative political stability, price corrections and declining interest rates, Bangladesh’s financial sector started a comeback this year after couple of years of continuous slump. The economic growth in Bangladesh held up well subsequently because of brisk domestic demand, boosted by higher worker remittances, private sector wages, and public investment. As such, ILFSL also exhibited a substantial progress in many of the business lines during 2016. Total asset of the group grew by 51.38% from BDT 20.28 billion in 2015 to BDT 30.70 billion in 2016. Significant amount of disbursements were made in Corporate and SME business. Furthermore cautious investment in capital market and correct on time decisions have led to an overall success for the company. Cost of borrowing has reduced from 10.80.% in 2015 to 9.73% in 2016. This is due to the settlement of high cost bank borrowing and increase in public deposit. Decreased cost to income ratio is the result of increased efficiency and better utilization of the company’s resources. Total disbursement of ILFSL grew by 15.30% compared to 2015, largely on the back of stronger performance across all our business divisions and through increased concentration on due diligence in credit approval.The total disbursed amount in 2016 was BDT 10,870 million compared to BDT 9,427million in 2015.
In line with our long term strategy, we penetrated the liability market strongly with the focus on increasing our retail customer base by offering attractive rates and ensuring quality customer services. On the deposit side, our total deposits grew by 63.39.% from BDT 13,409.45 million in 2015 to BDT 20,966.44 million in 2016, largely driven by our strong liability sales team who has provided uncompromising service. The company’s Leases, loans and advances portfolio reached BDT 29,730.23million in 2016 compared to BDT 19,008.57 million in 2015. NPL showed a positive picture as the percentage of classified loans for the company decreased to 4.68% in 2016 compared to 7.34% in 2015.
Consolidated operating revenue stands at BDT 3,596.04 million while operating expenses of BDT 3,129.63 million were incurred. Consolidated net profit after tax is reported at BDT 125.85 million. Return on average equity was 5.57.% during 2016 for the group and Consolidated Earnings per Share (EPS) stood at BDT 0.70The ILFSL Group’s consolidated performance in 2016.
2016 started with steady political environments that boost up the confidence of the business community throughout theyear. However, surplus liquiditywhich started in 2014 poses a new challenge for most of theTreasurer in the Banking and Non-Banking sector. The inter-bank call money market remained liquid and stablein 2016. We were very prudent to place our self to take the advantageof liquidity condition. Deposit was our key sources of fundespecially public deposit. You will be happy to know that we expanded our Liability Management Division in the later part of 2015 and this division did an excellent job to mobilize deposit andas of December 31, 2016 our Term Deposit portfolio stood at BDT 11,056.44 million.
During the year deposit portfolio has been increased by BDT 8,501.16 million and posted a 63.39% year on- year growth.50.46% of total deposit as on 31 December2016 was Public deposit (Corporate and Retail).We continued our drive to reduce the dependency on high cost long term bank borrowing.
Capital Market Operations
Despite of huge down turn in the capital market, we successfully consolidate our positions in capital market investment in 2016. We have made some major rebalancing in the portfolio and have taken a few strategic investments.We are quite optimistic in reaping impressive returns from our positions in coming years.
Human capital policy at ILFSL is based on the recognition that its people are its most valuable asset. Prudent development, deployment and management of its human resources have been a key contributor to the company’s Success records. We have found that sensitivity to the needs and aspirations of individual employees is as conducive to successful human resources management as an accurate assessment of employee capabilities, potentials and attitudes. We thus value the contributions an employee exerts in the organization and adopted policy to reward efforts accordingly.
Our recruitment system has been designed to ensure that the employees recruited for the service in the company match with the job requirements relevant to the position being hired for. All recruitment policies within the company are in line with the statutory employment laws of Bangladesh and in accordance with the approval of the company’s Board of Directors.
ILFSL decides the scales of the employees belonging to different grades from time to time. The salary structure of the company is reviewed in every three years to allow adjustments to update with the change in the cost of living indices.The company’s recruitment and career development policies provide equal opportunities for all citizens in the country. It is our policy that the best qualified applicants be hired without regard to race, color, age, religion, gender,national origin, physical or mental disability, veteran status,sexual preference, marital status and any other characteristic protected by law. The Company is committed to developing and maintaining a diverse workforce and to treating all individuals with dignity and respect.
Information Technology (IT) division is responsible for creating establishing and maintaining IT infrastructure for the whole organization. They are involved with development of software, database integration and migration, hardware procurement, installation and maintenance, network infrastructure development to ensure trouble free links, troubleshooting of different network, pc devices etc. Besides IT department is also responsible for backup of data, backup power, antivirus, terminal server, branch connectivity and internet connections.
The Board acknowledges its responsibilities for ILFSL’s system of internal control and for reviewing its adequacy and effectiveness. The system of internal control covers, inter alia, financial, operational, management information systems, organizational and compliance controls. These controls include financial controls that assist the Board in meeting its responsibilities for the integrity and accuracy of the company’s accounting records. The Company’s financial statements, prepared from these records, comply with the required laws and standards. A separate report on Internal Control is given on page 65 of this Annual Report.
International Leasing Securities Limited (ILSL) is a subsidiary of International Leasing And Financial Services Limited, a leading equity brokerage house in the country with a diverse clientele of institutions, high net worth individuals, foreign funds and retail investors. ILSL has achieved much recognition for its professionalism in its trade execution capability and settlement procedures & cutting edge sell side research base. ILSL posted after tax net profit of BDT 1.17 million which was BDT 11.88million in the year 2015. In terms of turnover in December 2016, it achieved 12th position in the DSE. ILSL’s operating performance is outlined below:
Another subsidiary of ILFSL namely IL Capital Limited (ILCL)has already been successful in establishing itself as one of the well known merchant banks. ILCL offers a wide range of investment management services i.e. corporate advisory and consulting for business development, portfolio management and so forth. During the year 2016 ILCL has incurred net profit of BDT 10.82 million as against net profit after tax amounting to BDT 4.66 million in 2015.
Financial result and appropriation of profit
The Company posted profit before tax for the year end 2016 amounting to BDT 200.51 million, indicating decrease in growth of (12.96%) from BDT 230.30 million in 2015 while net profit after tax also increase by 5.89.% at BDT 114.25 million in 2016 from BDT 107.89 million in 2015.
2016 was a challenging year towards the growth & prosperity.Considering the overall environment of financial market, current financial strength of the Company and future investment prospect the Board is recommending stock dividend at the rate of 5% for the year 2016. The Directors are pleased to report the financial results for the year 2016 and recommend the following appropriations:
|Operational Profit before provisions||Tk.416,907,192|
|Provision for doubtful accounts||Tk.216,391,750|
|Profit before taxes||Tk.200,515,442|
|Profit After Tax||Tk.114,255,046|
|Transferred to Statutory Reserve||Tk.22,851,009|
|Net surplus in Profit and Loss Account||Tk.91,404,037|
|Retained Earnings Brought forward||Tk.10,040,921|
|Profit Available for Distribution||Tk.101,444,958|
|Dividend – Stock @ 5 percent||Tk.89,816,265|
|Retained Earnings Carried Forward||Tk.11,628,693|
Key Operating and Financial Data
Key operating and financial data for last five years as per Notification No. SEC/CMRRCD/2006-158/129/Admin/44 dated 07 August 2012 is outlined below:
Declaration of Dividend
The Board of Directors in its 203rd meeting held on April 23,2017 recommended 5% Stock Dividend for the year ended on 31 December 2016 subject to approval the shareholders at 21st Annual General Meeting scheduled to be held on June 15, 2017. Details of the dividend declared during the financial year are disclosed in Note 12.2 of the Notes to the Financial Statements on page 124 of this annual report.
Plan for Utilization of Undistributed Profits
The Company requires substantial funds every year to carry out its regular business operation. The undistributed profits will be utilized to disburse fund for its new investments and will be used to meet contingencies in future as authorized under Article 100 of the Schedule I of the Companies Act 1994. Additionally with this retention a reasonable debt equity ratio would be maintained & the borrowing power of the Company would be enhanced.
Related Party Disclosure
The directors have also disclosed the transactions, if any,that could be classified as related party transactions in terms of Bangladesh Accounting Standard – 24: “Related party disclosures” which is adopted in the preparation of financial statements. Those transactions disclosed by the directors are given in the note 39 to the financial statements.
The Board of Directors has reviewed the Company’s overall business plans, strategies and is satisfied that the Company has adequate resources to continue its operations in the foreseeable future. Accordingly, the financial statements of the company are prepared based on the going concern concept.
Risk and Concern
The Board of Directors are responsible for formulating risk policies, determining methods to measure and manage risk,setting commensurate risk limits and monitoring their performances. The company beliefs in managing risk in a forward looking manner and steering credit, interest rate, liquidity, market and operational risks through establishing strategies, models and parameters.
A credit rating is an assessment of the solvency or credit-worthiness of a company according to established credit rating procedures. These ratings help investors to analyze the risks associated with the company by providing detailed information of the ability of a company to meet their obligations. A rating is being continuously monitored. It enables investors to measure their investment risk. The company is rated by one of the leading independent rating agencies named National Credit Ratings Limited (NCR).ILFSL has been rated by the NCR and adjudged “A” in the long term and ST -2 in the Short term. The validity of the rating will expire on 28 September 2017.
Details of directors’ emoluments paid during the year are given in notes 30 to the financial statements.
Contribution to National Exchequer
With a view to assist the Government in building up revenues and thus contribute to the economic development of the Country, ILFSL deposits taxes regularly to the National Exchequer by way of collection of income taxes and VAT at sources from various payments and also deposits of income taxes of the Company on its income. In 2016, ILFSL deposited BDT 85.92 million to the Government exchequer as corporate income tax. Moreover, BDT 24.40.million was collected and deposited to the Government exchequer as withholding tax,VAT and excise duty.
Material changes after Balance Sheet date
There have been no material changes and commitments between the end of 2016 and the date of this report, affecting the financial position of the Company.
Code of Conduct
The Board has laid down a code of conduct for the Board members. All the Board members have certified that they have received, read, understood and affirmed compliance with the code for the year ended 31 December 2016.
Directors to retire, re-appointment and biographies of the Directors
As per the Articles of Association of the Company and the Companies Act 1994, one-third of the Directors of the Company are required to retire by rotation at each Annual General Meeting (AGM). The retiring Directors are eligible to stand for re-election. In this connection the following Directors will retire in the Twenty first Annual General Meeting and being eligible offered themselves for re-election as per Articles of Association of the Company:
- 1.Mr. Nasim Anwar, FCA
- 2.Mrs. Papia Banerjee
- 3.Mr. Momtaz Begum
Appointment of Independent Director
The Board of Directors has appointed Mr. M. A. Hashem as Independent Directors of the Company for a period of 3 (three) years in compliance with the Corporate Governance Guidelines of Bangladesh Securities and Exchange Commission.
The shareholding pattern as per Clause 2(k)of SEC Notification No. SEC No. SEC/CMRRCD/2006-158/134/Admin/44: dated August 07, 2012 is shown in page 49.
Board Meeting & Attendance
During the year 2016, 15 (fifteen) nos. of Meetings of the Board of Directors were held. Attendance of the Directors is shown in the page 50.of Annaual Report 2016
Rahman Mostafa Alam & Co. Chartered Accountants have completed their second year as statutory auditor of the Company. Being eligible for the reappointment, the existing auditor M/s. Rahman Mostafa Alam & Co. Chartered Accountants offered themselves for reappointment. In this regard the Audit Committee scrutinized and reviewed the proposals and recommended the Board to appoint M/s. Rahman Mostafa Alam & Co. Chartered Accountants, as external Auditor of the Company for the year 2017 with an audit fee of BDT 275,000 plus VAT at the applicable rate.
The Board in its meeting held on April 23, 2017 recommended the shareholders to appoint M/s. Rahman Mostafa Alam & Co. Chartered Accountants at a remuneration of BDT 275,000 plus VAT. We have also taken the prior approval from Bangladesh Bank to appoint M/s. Rahman Mostafa Alam & Co, Chartered Accountants, until conclusion of 22nd AGM.
Reporting on Corporate Governance Compliance
Pursuant to Clause 5.00 of SEC Notification No.SEC/CMRRCD /200658/129/Admin/44 dated 07 August 2012 the Company’s compliance status is shown in Annexure-i page 55. of Annaual Report 2016.
Corporate and Financial Reporting Framework
The Directors, in accordance with SEC Notification No. SEC/CMRRCD/200658/129/Admin/44 dated 07 August 2012;confirm compliance with the financial reporting framework for the following:
- The financial statements prepared by the management present fairly the Company’s state of affairs, the result of its operations, cash flows and changes in equity
- Proper books of accounts of the Company have been maintained. Appropriate accounting policies have been consistently applied in preparation of the financial statements and that the accounting estimates are based on reasonable and prudent judgment
- International Accounting Standards and International Financial Reporting Standards, as applicable in Bangladesh, have been followed in preparation of the financial statements. The system of internal control is sound in design and has been effectively implemented and monitored
- There is no significant doubt upon the Company’s ability to continue as a going concern
- There is no extraordinary gain or loss during the year.
- After issuance of right shares, financial results of the company had not been deteriorated
- No significant difference occurs between quarterly financial performance and annual financial statements
- There are no significant changes in the Company or its subsidiaries’ fixed assets and the market value
- The company had not enabled any of its directors to acquire benefits by means of acquisition of share or debentures of the company or anybody corporate
Issuance of Bond
ILFSL have been heavily relying on its customer deposits,which is short-term in nature and the rest is managed and sourced by the treasury department. To support our assets growth, we need to have more long-term funds in our overall funding mix. Issuance of bond could be one of the long-term sources of funding our portfolio. Bangladesh Bank is also very keen to develop the Bond Market in Bangladesh.
In the middle of 2016 the Board of Directors decided to issue Non-convertible Unsecured Coupon Bearing Subordinated Bond of BDT 2000.00 (Taka Two Thousand) million for 7 years tenure through private placement to meet its ongoing financing requirements and future capital adequacy requirement subject to the approval of Bangladesh Bank,Bangladesh Securities and Exchange Commission and other regulatory authorities. RSA Capital Limited, a leading merchant banker was appointed as the Lead Arranger of the issue. Hope this issue will be materialized by middle of this year.
You will be happy to know that ILFSL opened its two new branches at Uttara and Sylhet in February 2017. However this initiative was taken in the middle of 2016. ILFSL is also planning to open few more branches at Dhanmondi,Gulshan and Mirpur area.
The Board of Directors takes this opportunity of expressing its heart-felt appreciation and gratitude to the valued clients,depositors, lenders, bankers, patrons and business partners for their continued support and cooperation. The Board also expresses its deepest gratitude to Bangladesh Bank,Bangladesh Securities & Exchange Commission (SEC), Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE),Registrar of Joint Stock Companies and Firms, National Board of Revenue (NBR) and other regulatory bodies for their help, assistance, valuable guidance and advice being extended to the Company from time to time. The Board also acknowledges the hard work, dedication and commitment of the employees. Their enthusiasm and unstinting efforts have enabled the company to grow better than before. We hope similar support from all of you that will underpin our continuous growth.
On behalf of the Board of Directors
M. A. Hashem