Southeast University
Term paper on Financial Institution Analysis
[Year]
Submitted by :
Course Title:
Financial
Management
Term paper on Financial Institution Analysis
Rajib Alam
2011010000195
Batch No: 27th
Section : F
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
Southeast University
Acknowledgement
Its 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 wouldnt be completed
in due time.
Southeast University
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
countrys transition into a developing country and has emerged as Bangladeshs 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.
Page 6
Southeast University
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).
Page 7
Southeast University
Page 8
Southeast University
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.
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
Advertising
Bank Atmosphere
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.
Page 11
Southeast University
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.
Page 12
Southeast University
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 theyd 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.
Page 13
Southeast University
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
Page 14
Southeast University
4.1.4 Goal:
Page 15
Southeast University
Page 16
Southeast University
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
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
/ SME Loan
/Term Loan
/Abashan Loan
/Lease Finance
/Seasonal Loan
Capital Markets
Portfolio Management
/Specialized Product
B.2) Supplier Finance
Investment Banking (IPO,RPO Bond Issuance, Rights, Rights shares ,offering, Corporate Advisory ect)
Research
Brokerage Services
Page 17
Southeast University
Page 18
Southeast University
a)Current Ratio
b) Quick Ratio
c) Cash Ratio
c) Operating Cycle
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
Page 19
Southeast University
Financial Performance
2007
2008
2009
2010
2011
Growth %
Page 20
Southeast University
Lease and Term loans disbursed
2,977
3,412
3,750
4,345
8,517
96.03%
1,255
1,612
1,839
2,121
2,586
21.90%
213
336
317
468
821
75.61%
Lease Finance
4,571
4,734
4,383
4,107
4,547
10.72%
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%
11,103
12,115
18,792
21,745
25,299
16.34%
8,257
8,249
9,780
12,373
16,828
36.01%
1,401
1,559
3,645
4,172
3,676
-11.88%
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%
475
708
1,273
1,956
1,217
-37.81%
303
406
822
1,327
500
-62.30%
36.08
42.57
35.46
32.16
58.88
83.08%
9.54
8.32
8.48
6.30
6.83
8.44%
1.38
1.46
1.75
2.07
1.51
-26.96%
1.20:1
1.21:1
1.04:1
1.39:1
1.31:1
-0.08%
2.37
2.50
4.11
5.35
1.72
-3.63%
5.96
3.97
3.43
2.84
2.32
-0.52%
27.59
28.43
41.05
43.64
13.04
-30.60%
3.06
4.10
8.30
13.41
5.05
-62.30%
4.00
3.50
11.00
10.00
2.50
-75.00%
49.63
55.76
44.60
34.67
27.41
-20.96%
2.63
1.53
2.97
2.15
1.81
-0.34%
26.40
21.55
40.14
45.21
49.47
4.26%
Operational Performance
Financial Ratio
Page 21
Southeast University
Equity Statistics
2,000,000
2,500,000
3,000,000
6,000,000
99,000,000
1550.00%
1,519.00
2,289.00
3,703.00
4,648.00
138.50
-97.02%
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%
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%
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.
Page 22
Southeast University
Formula:
Page 23
Southeast University
Formula :
Earnings per share
Page 24
Southeast University
Page 25
Southeast University
Page 26
Southeast University
Formula:
Re turn on total assets
Page 27
Southeast University
Page 28
Southeast University
Formula:
Page 29
Southeast University
Page 30
Southeast University
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.
5.2 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.
Page 31
Southeast University
5.2.6 Profit:
Term paper on Financial Institutions Analysis of IDLC Finance
Page 32
Southeast University
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.
5.2.8 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
Page 33
Southeast University
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
Page 34
Southeast University
strategy implementation. In this process senior management selects a series of measures that
best represent the organizations 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
Page 35
Southeast University
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
Page 36