Political instability, provisioning rules dent profits of banks, non-banks in H1
The financial sector went through volatilities in the first half this year, as banks witnessed a declining trend in their profits, compared to the same period last year.
However, earnings of non-bank financial institutions showed a mixed trend during the period, while insurance companies’ profits marked a rise.
Political instability, which hurt private sector credit growth as well as imports, and higher provisioning for non-performing loans (NPL) pulled down the profit margin of listed banks and non-banks, officials said.
Although the central bank had set a target to take private sector credit growth to 18.5 percent by June, the rate fell to a ten-year low at 11.4 percent in May.
Imports declined 5.95 percent in the July-May period of fiscal 2012-13.
From January, the central bank has introduced tight rules for banks and non-banks for provisioning and rescheduling their loans.
However, earnings of most of the listed insurance companies went up in the first half as the insurers spent less on commission paid to their sales agents.
Earlier the insurance companies used to pay 40 percent commission on average to rope in clients, but the regulator set the highest ceiling at 15 percent last year and ensured strict compliance.
Among 30 listed banks, 25 disclosed their half-yearly earnings. Of them, profits of seven banks increased during the January-June period, while 16 saw their profit decline and two made net loss.
National Bank was the worst performer, as its half-yearly profits plunged by 233 percent.
Nurul Amin, chairman of the Association of Bankers, Bangladesh, said: “Business activities in the country declined due to the gas and power crisis, taking a heavy toll on the banking sector.”
He said industry owners are also adopting a wait-and-see policy due to the upcoming national election.
“Imports also fell this year compared to the previous year.”
Credit disbursement declined during the first half and local firms were taking loans from foreign sources, said Amin, also the managing director of NCC Bank.
“The strict provisioning rules for NPL also affected our profits,” he said.
The net interest margin was low, as cost of fund increased at the beginning of the year, he added.
As of yesterday, 33 general insurance companies, out of 35 listed, disclosed their half-yearly earnings.
Of them, 28 firms posted a rise in profits, while five saw a decline.
Green Delta Insurance Company witnessed the highest rise in profits, by 174 percent.
Nasir A Choudhury, adviser to Green Delta, said almost all the insurers fared well after the regulator imposed a ceiling on agency commission, which is a fee paid to an agent as a percentage of policy premium.
Before the ceiling was introduced, the insurance companies even offered up to 60 percent commission to boost their client portfolio.
Of the 19 listed non-banks, 16 disclosed their half-yearly earnings so far. Of them, profits of seven rose, six saw a decline and two made net loss.
International Leasing was the worst performer as its profits plunged by 458 percent.
Asad Khan, president of Bangladesh Leasing and Finance Companies Association, said: “Most of our earnings go to adjust the nonperforming loans.”
He also blamed the fall in the profits of the non-banks on the high cost of fund that rose by 15-15.5 percent.
“The non-banks have to rely mostly on banks for funds,” said Khan, also the managing director of Prime Finance.
Source: The Daily Star
