IPDC Finance Ltd has reported an 18 per cent year-on-year fall in its net profit in the third quarter of 2022, mainly due to higher provisions against loans and a decline in income from the stock market.
The capital market is one of the major sources of income for financial institutions, so the downward trend impacted the profit growth, said an official of the company requesting anonymity.
Listed in 2006, the stock remained stuck at the floor price-Tk 57.60 -- on Monday.
The company's net profit was Tk 180.08 million for July-September 2022, down from Tk 220 million in the same quarter last year.
As a result, earnings per share dropped from Tk 0.59 to Tk 0.49 despite a 24 per cent revenue growth during the same quarter.
However, EPS had a steady growth in Q1 and Q2 of this year, compared to the previous year.
One of the leading non-bank financial institutions, IPDC's loan disbursement rose by Tk 6.05 billion while customers' deposits slumped by Tk 5.25 billion in the July-September quarter of this year, compared to the same period last year, according to a disclosure posted on the Dhaka Stock Exchange (DSE).
Deposits declined due to the unabated inflation forcing people to withdraw their savings to meet daily expenses.
The lower deposit rates also discourage people to save up and keep money in non-bank financial institutions as well as in banks.
IPDC Finance kept a provision of Tk 111.40 million in July-September 2022 as against Tk 11.77 million in the previous year, according to its unaudited financial statement.
Leasing companies have to keep provision on the unrealised loss of investments, said AB Mirza Azizul Islam, former adviser to the caretaker government.
As the capital market is on a downward trend, financial institutions need to keep higher provisions against their investments, said Mr Islam, former chairman of Bangladesh Securities and Exchange Commission.
A major constraint on the business of financial institutions has been the narrowing of the gap between the deposit rate and the lending rate, he said.
Last year, the stock market was bullish but financial institutions were not required to keep provision amid a suspension of loan classification, which ultimately boosted profits.
Since banks' lending rate has been below 9.0 per cent since April 2020, the NBFIs have had to cut the lending rate to remain in business.
The central bank maintained a moratorium on loan repayment throughout 2020 amid lockdowns due to the pandemic. The relaxed policy continued last year as well.
Therefore, borrowers could avoid slipping into the default zone even if they failed to repay loans.
The facility kept non-performing loans of the NBFIs at a reduced level, allowing them to set aside a lower amount for provisioning.
