Banks, Non-bank financial institutions (NBFIs), & General Insurance sector represents the most important parts of a financial system. In Bangladesh, NBFIs are new in the financial system as compared to banking financial institutions (BFIs). Credit rating is an assessment of the creditworthiness of an individuals or firms or it securities which is generally conducted by an independent credit rating agency. It measures the probability of the timely repayment of principal and interest of a bond. We have tried to analyze the credit rating system of Banks, NBFIs & General insurance Company in Bangladesh. And then we analyze the credit rating of IFIC Bank Ltd., GSP Finance (BD) Ltd & Agrani Insurance Company Limited. For this purpose we have done some analysis here.
First- we have tried to show some qualitative analysis. In this segment we have done
- Industry Risk
- Keys to succeeds
- Diversification factors
- Firm Size
- Evaluation of Management
- Accounting Quality: Income recognition, depreciation and inventory pricing methods and off balance sheet items
- Profit Margins
Second- we have tried to show some quantitative analysis. This segment includes-
- Ratio Analysis
- Credit Rating based on Regression model.
And finally we have tried to show the creditworthiness of the company. After analyzing all aspects of these three sector industry, we have assigned rating what should be awarded.
For the credit rating of IFIC Bank Ltd. we have considered the guidelines provided by our course teacher. Credit rating is “an objective and impartial opinion on the ability and willingness of an issuer to make full and timely payments of financial obligations.” This opinion is conveyed in a simple alphanumerical scale, for easy reference and comparability.
Rating is essentially an opinion. Here we have also give our opinion within various limitations. For this purpose we have analyzed both the qualitative and the quantitative factors of the banking industry as a whole and also various factor of IFIC Bank Ltd. itself. In the part of qualitative analysis we have analyze the industry risk, keys to success, diversification factors, firm size, management quality, quality of the financial reporting, performance in the industry. In the quantitative analysis we consider the profitability, cash flow adequacy, capital structure and financial flexibility. We have assigned some points on both the qualitative and quantitative information to get the exact rating. As for the sustainability of an organization both the quality of the management and quantitative figure that means company’s financial performances are equally important we have assigned equal weights for bother he qualitative part and quantitative part.
Our ratings are based on the mostly to historical data which have been adjusted for future looking and we assume sustainable normal business condition. Nonetheless, changing conditions, new complexities and risks which may emerge could affect the assigned ratings. As such, changes in ratings can happen after the initial assignment.
|AAA Triple A (Extremely Strong Capacity & Highest Quality)||Commercial Banks rated ‘AAA’ has extremely strong capacity to meet its financial commitments. ‘AAA’ is the highest issuer credit rating assigned by CRAB. AAA is judged to be of the highest quality, with minimal credit risk.|
|AA1, AA2, AA3* Double A (Very Strong Capacity & Very High Quality)||Commercial Banks rated ‘AA’ has very strong capacity to meet its financial commitments. It differs from the highest-rated Commercial Banks only to a small degree. AA is judged to be of very high quality and is subject to very low credit risk.|
|A1, A2, A3 Single A (Strong Capacity & High Quality)||Commercial Banks rated ‘A’ has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than Commercial Banks in higher-rated categories. A is judged to be of high quality and are subject to low credit risk.|
|BBB1, BBB2, BBB3 Triple B (Adequate Capacity & Medium Quality)||Commercial Banks rated ‘BBB’ has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the Commercial Banks to meet its financial commitments. BBB is subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics.|
|BB1, BB2, BB3 Double B (Inadequate Capacity & Substantial Credit Risk)||Commercial Banks rated ‘BB’ is less vulnerable in the near term than other lower-rated Commercial Banks. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions, which could lead to the Commercial Bank’s inadequate capacity to meet its financial commitments. BB is judged to have speculative elements and is subject to substantial credit risk.|
|B1, B2, B3 Single B (Weak Capacity & High Credit Risk)||Commercial Banks rated ‘B’ is more vulnerable than the Commercial Banks rated ‘BB’, but the Commercial Banks currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the Commercial Bank’s capacity or willingness to meet its financial commitments. B is considered speculative and weak capacity and is subject to high credit risk.|
|CCC1, CCC2, CCC3 Triple C (Very Weak Capacity & Very High Credit Risk)||Commercial Banks rated ‘CCC’ is currently vulnerable, and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments. CCC is judged to be of very weak standing and is subject to very high credit risk.|
|CC Double C (Extremely Weak Capacity & Extremely High Credit Risk)||Commercial Banks rated ‘CC’ is currently highly vulnerable. CC is highly speculative and is likely in, or very near, default, with some prospect of recovery of principal and interest.|
|C Single C (Near to Default)||A ‘C’ rating is assigned that is currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the ‘C’ rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instrument’s terms. C is typically in default, with little prospect for recovery of principal or interest.|
|D (Default)||‘D’ is in default. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.|
The economy of Bangladesh has shown considerable resilience in 2009 despite global recession. The crisis did not impact Bangladesh economy severely because of low levels of financial integration. During FY 2009, real GDP growth of the country slowed modestly to 5.9 percent against 6.2 percent of FY 2008. The lingering impacts of the global economic crisis may have an effect on the GDP growth in FY2010. But macroeconomic management remained prudent in the first half of FY2010.
Industry sector growth declined to 5.9% in FY2009 from 6.8% in FY2008 because of the impact of the global economic slowdown on exports from Bangladesh. In FY2010 the growth of industry may decelerate further as both the import of capital machinery and disbursement of industrial term loan declined at a high rate in FY2009 compared to FY2008 and the declining trend is continuing in the current fiscal, FY2010.
Agriculture sector recorded a significantly higher growth rate (provisional, 4.6 percent) in FY2009 compared to 3.2 percent actual of last fiscal year. In current fiscal, FY2010 the sector expected to grow at respectable rate since favorable weather condition has remained and credit disbursement in this sector has increased significantly, a 27.7 percent higher than the amount disbursed over the same period of FY2009.
MONETARY & FINANCIAL DEVELOPMENT
Broad money grew at 18.45% year-on-year in October 2009. Credit to Deposit ratio of the banks stood at 88.26% by the end of December 2009. The weighted average nominal exchange rate (taka/dollar) remained stable between Tk 68–Tk 69: $1 during the first three quarters of 2009.
Private sector credit growth experienced a marginal fall to 19.15% year-on-year in December 2009, down from 21.77% in December 2008. Economic purposes classifications of private sector bank advances show that major portion of bank advances belonged to trade financing in the first three quarters of 2009 followed by advances to industry sector and working capital financing.
The interest rate spread declined from 5.18% in September 2008 to 5.02% in September 2009. By the end of the third quarter of 2009 average lending rate of all banks reduced to 11.59% (September, 2008: 12.35%). On the other hand, in the third quarter of 2009 average deposit rate in the banking sector also reduced to 6.57% (September, 2008: 7.17%). Call money rate showed a decreasing trend during 2009. Weighted average call rate plunged to 0.74% in August but rebounded to 4.35% in November 2009.
The Bank was established in 1976 at the instance of the govt. as a joint venture finance company named “International Finance and Investment Company Limited”. In 1983 this finance company was converted into a commercial bank under the Companies Act 1913 (now 1994) under the name “International Finance Investment and Commerce Bank Limited”.
As on 31st December 2009 the Govt. held 32.75%, Directors 2.97%, Sponsors 5.65% and General Public held 58.63% ordinary shares. The Board of Directors recommended 25% bonus shares for the year 2009.
Presently the Bank has 82 branches and 5 SME service centers all over the country. Of the total branches, 57 branches were located in urban areas and 25 in rural areas. Besides, the Bank provides its brokerage service through a Capital Market Division at Head Office.
- Retail Banking
The Bank under its retail banking offers a wide variety of deposit products, loan products & value added services to suit banking requirements. Products and services for individual customers include: Consumer Finance, Deposit Product, Card, NRB Account, Student File, SMS Banking etc.
- Corporate Banking
IFIC is providing a wide range of financial services, offering specialist advice and products to corporate clients to meet diverse demands of changing market scenario. Products and services for commercial and business customers include: Working Capital Finance, Project Finance, Term Finance, Trade Finance, Lease Finance, Syndication Loan etc.
- Brokerage Activities
The Bank offers brokerage services for individual and institutional investors. The Bank is responsible for origination of sales, buy and trading of securities of Capital markets. It provides relevant support to customer. It has membership in Dhaka Stock Exchange Limited.
- Agriculture Credit
The Bank is offering Agriculture Loan products namely i) Krishi Saronjam Rin – for Agriculture Equipments ii) Shech Saronjam Rin – for irrigation equipments iii) Poshupokkhi & Motsho Khamar Rin – for Live Stock & Fish Culture & iv) Phalphasali Rin – for Fruit Orchard for individuals & group at micro level.
- SME Banking
To facilitate SME sector of the country, the Bank provides collateral free credit facilities to the small & medium entrepreneurs across the country who have very limited access to traditional credit facilities. The Bank offers 15 different products for selected target groups, such as – Easy Commercial Loan, Retailers Loan, Muldhan Loan, Women Entrepreneur’s Loan (Protyasha) etc.
The Management team of IFIC was headed by Mr. Mosharraf Hossain, CEO & Managing Director. He has around 40 years of banking experience. The CEO & Managing Director, Deputy Managing Director and Head of Divisions are responsible for achieving business goals and overseeing the day to day operation. The CEO & Managing Director is assisted by a Senior Management Group consisting of Deputy Managing Director and Head of Divisions who supervise operation of various divisions centrally and co-ordinates operation of branches.
For smooth functioning of the Bank management have formed 2 (two) Committees:
- Management Committee (MANCOM)
The Management Committee of IFIC comprises of 13(thirteen) members holding key positions in the Management of the Bank. The Committee is headed by the CEO & Managing Director. The SEVP & Head of Finance & Account act as the Member Secretary of the Committee. The Committee sits at least once every month to review and evaluate strategic operational issues of the Bank, identify specific problems which need to be immediately attended. Generally, the MANCOM is concerned with major decision-making in the Bank, planning and framing of policy guidelines. The Committee of the Bank held 13(thirteen) meetings in the year 2009 as against 16(sixteen) in 2008 and took many important decisions concerning the Bank.
- Asset Liability Committee (ALCO)
There is an Asset Liability Committee comprising of 12 (twelve) members of the Senior Executives headed by CEO and Managing Director to look into all operational functions and Risk Management of the Bank. The EVP & Head of Treasury & International Banking act as the Member Secretary of the Committee. To address all the risk elements of the balance sheet, monthly ALCO meetings were conducted in 2009.
Human Resource Management:
By the end of 2009, total human resources of the Bank were 2,193. During this period, 185 people joined while 100 employees retired or left the organization. The Bank organizes both internal and external training programs to enhance the skills and knowledge of its employees. The Bank provides in-house training, both on the job and off the job through the Bank’s TrainingAcademy. Main training activities consist of in-depth foundation programs for entry level Management Trainees. Specialized training programs in the areas like general banking, advance, foreign exchange, marketing and accounts etc. are also organized by the Academy depending on need. In addition to conducting courses internally, the training academy also selects candidates for nomination to various courses conducted by distinguished training organizations in the country including BangladeshBankTrainingAcademy and Bangladesh Institute of Bank Management.
Credit Policy & Approval Process:
In line with Bangladesh Bank’s core risk management guideline, IFIC has formulated its own policies for core risk management. The Credit Risk Management policy of the Bank have been formulated to maintain a manageable loan portfolio by taking calculated risk and ensuring quality of loans. As per BB guideline lending functions have been segregated as (a)
Credit Approval/Risk Management (b) Relationship Management/Marketing and (c) Credit Administration.
- Credit Processing
The responsibility for preparing the credit proposal rests with the Relationship Manager (Branch) within the Corporate and Marketing Department. Credit applications received by the RM of the Branch is assessed and credit proposals are prepared by RM’s team. If the proposed facilities are found viable and complying all terms of credit guidelines by the RM’s team, the proposal is sent to the Head of Corporate and Marketing at Head Office along with recommendation who in turn recommends to Head of Credit. The credit proposals under Consumer Finance & SME are directly forwarded to Head of Credit with due recommendation.
- Credit Sanctioning
On receipt of credit proposals from Head of Corporate and Marketing the same is distributed to the respective Credit Managers at Head Office to scrutinize, analyze and prepare the proposal with due diligence along with their observation and for placing to the Head of Credit Risk Management. Credit Risk Management Division has been divided into separate departments for handling Large Enterprise, Small & Medium Enterprise, Project Loan, Lease Finance, and Consumer Finance. Besides there are two separate department namely Credit Administration and Credit Information & Returns for monitoring and reporting of Loan & Advances.
- Credit Monitoring
To minimize credit losses, monitoring procedures & systems are in place that provides an early indication of deteriorating financial health of a borrower. Credit Administration Department under CRM Division is entrusted to look into disbursement against sanctioned facility upon completion of documentation formalities & complying all sanction terms; monitoring loan terms and conditions, financial statements on a regular basis and referring any breaches of covenant or exception to the management; past due principal or interest payments, past due trade bills, account excesses are looked into; taking timely corrective action to address finding of internal, external and regulator inspection/audit and early identification and prompt reporting of deteriorating credits by submission of Early Alert Report.
Management Information System:
IFIC has been using computer based operation since its inception. In 2005, Bank adopted an UK based real time on-line complete banking solution (Misys Banking Solution) to cope with the Modern Banking and upgrade Bank’s service to international standard. This solution is a complete package of all sorts of Banking Business. Implementation of Misys real time On-line solution has been completed at all the branches of IFIC including Head Office and through this the Bank has reached to a single centralized IT Platform which is a remarkable achievement for the Bank.
Financial Reporting & Disclosures:
The financial statements of IFIC were audited by reputed chartered accountants firm M.J Abedin & Co. According to them the financial statements prepared in accordance with Bangladesh Financial Reporting Standards (BFRS) and give a true and fair view of the state of the Bank’s affairs as of 31st December 2009 and of the results of its operations and cash flows for the year then ended and comply with the applicable sections of the Bank Companies Act, 1991, the rules and regulations issued by the Bangladesh Bank, the Companies Act, 1994, the Securities and Exchange Rule, 1987 and other applicable laws and regulations.
Board of Directors:
IFIC’s Board is comprised of 13 (thirteen) members. The Board is headed by Mr. Mohammad Lutfar Rahman, the Chairman of the Board. The Board of Directors is responsible for the strategic planning and overall policy guidelines of the Bank. During 2009, the Board conducted 23 meetings. The Board formed 2 (two) Committees, namely Executive Committee and Audit Committee.
- Executive Committee
To dispose urgent business proposals there is an Executive Committee of the Board consisting of 9 (nine) members headed by a Director. The Board meets frequently to resolve most of the issues; therefore, no EC meeting was convened during 2009.
- Audit Committee
There is an Audit Committee in the Board to oversee compliance of major regulatory and operational issues. The Audit Committee consists of 3(three) members including the independent director. During 2009, 9(nine) meetings were held.
Internal Control & Compliance:
To ensure smooth operation of the Bank Internal Control & Compliance Division with three departments namely; Compliance, Monitoring and Audit & Inspection is working as ongoing process. In line with Bangladesh Bank guidelines, formulation of policy guideline, set up of separate organizational structure, segregation of duties and introduction of internal control process, such as Departmental Control Function Checklist (DECFL), Quarterly Operation Report (QOR), Unified Calendar of returns, Ethics/Code of Conduct of employees have meanwhile been done for successful implementation of effective internal control system. Compliance Department is functioning to ensure compliance with statutory & regulatory requirement and also Bank’s own policy & procedures for developing compliance culture. Monitoring department is responsible for operational performance of branches and Head office Divisions by minimizing/ avoiding risk factors. As the internal watch dog of the Bank, an independent Audit & Inspection mechanism is working to review the effectiveness of internal control at the Branches/ Divisions. Internal Control Unit has also been set-up at the branches with the existing manpower to minimize irregularities/ lapse, to prevent fraud/forgeries and to control risks at the operational level. As a whole, an effective control has been in place & further strengthened with strict compliance, effective monitoring & risk based Audit both at the Branches & Head office level for improving overall worked achieving its ultimate goal.
The major objective of Bank’s risk management policy is identification, measurement, monitoring and controlling risk to ensure that Bank’s capital, its financial resources and profitability is safeguarded from various risks. Bangladesh Bank has identified six core risks namely, Credit risk, Money Laundering risk, Asset Liability risk, Foreign Exchange risk, Internal Control and Compliance risk and Information & Communication Technology risk for a bank company and has also issued core risk management guidelines for observance by all banks operating in the country. In line with Bangladesh Bank’s core risk management guidelines, IFIC Bank formulated its own policies for management of the core risks.
Implementation of Basel II Framework:
In order to comply with Basel II requirements, the Bank has taken necessary steps and submitted reports as per Basel II guidelines of Bangladesh Bank for each quarter of 2009 in parallel with Basel I. The Bank has also formed Basel II Implementation Unit and Basel II Implementation Cell comprising of senior management and other officials of related disciplines.
PART C: QUANTITATIVE ANALYSIS OF IFIC Bank Limited
Earnings & Volatility:
Total operating income of IFIC was BDT 3,724.36 million in 2009 which was BDT 3,179.60 million in 2008. During 2009 the composition of total operating income has changed than that of 2008. In 2009, investment income dominated the revenue stream with 37.32% of total income, followed by net interest income 29.59%, commission, exchange & brokerage 23.82% and other operating income 9.26%. However, in 2008 net interest income contributed highest 36.76% followed by commission, exchange & brokerage 27.49%, investments income 21.82% and other operating income 13.93%.
Exhibit 01: Segregation of RevenueBDT in million
% of Total
% of Total
|Net Interest Income|
|Income from Investments|
|Commission, Exchange & Brokerage|
|Other Operating Income|
Total Operating Income
IFIC’s interest income had a growth of 10.15% in 2009 backed by 14.46% growth in loans & advances. Other sources of interest income are call loan and balance with foreign banks. Though Bank’s deposit increased by 38.58% the interest expense increased by 18.03%, because of decrease in average deposit rate. In 2009 IFIC’s net interest income decreased by 5.69% to BDT 1,102.18 million from BDT 1,168.70 million in 2008.
Investment income, which in 2009 dominates the operating income of the Bank increased by 100.34% to BDT 1,390.09 million in 2009 from BDT 693.87 million in 2008 backed by 73.67% increase in total investment portfolio.
In 2009 commission, exchange & brokerage income increased only by 1.48% to BDT 887.03 million. Other operating income which included recovery of different charges; different types of rent, service charges etc decreased by 22.09% to BDT 345.05 million in 2009 from BDT 442.91 million in 2008 because of decrease in recovery on written off advance.
Exhibit 02: Key Performance Indicators
BDT in million
|Net Interest Income|
|Commission, Exchange & Brokerage|
|Other Operating Income|
|Total Operating Income|
|Total Operating Expenses|
|Pre Provision Profit|
|Total Profit (before tax)|
|Total Profit (after tax)|
The operating income of the Bank had a growth of 17.13% in 2008 whereas the operating expense had a growth of 13.33% of which 56.96% was personnel expenses registering a growth of 7.13%. The net operating profit of IFIC registered a growth of 20.79% in 2009 which was 7.94% in 2008. Though the classified and unclassified loans & advance has increased in 2009 the provision increased marginally because of adjustment with the previous year’s provision for other assets & off balance sheet items. The total profit (before tax) was BDT 1,649.52 million which increased over 2008 by 25.22%. The profit (after tax) has increased to BDT 899.52 million in 2009 from BDT 657.31 million in 2008 registering a growth of 36.85%.
Exhibit 03: Operating Cost Ratios
|Cost to Income Ratio (%)|
|Staff Cost to Income Ratio (%)|
Cost to income ratio of the Bank was almost stable in 2009. The ratio decreased marginally to 47.39% from 48.98% and staff cost to income ratio decreased to 26.99% from 29.51% in 2008.
Net interest margin of the Company decreased to 2.72% in 2009 due to reduction in net interest income. The net interest income has decreased due to reduction in average lending rate while interest expense has increased by 18.03% due to 38.58% increase in deposits. The net profit margin in 2009 increased to 24.15% from 20.67% in 2008 because of increase in operating income backed by sharp increase in investment income. The asset utilization of the Company decreased marginally to 6.86% in 2009 from 7.43% in 2008. Though the asset utilization has decreased in 2009 IFIC’s return on average assets (after tax) increased to 1.66% from 1.53% due to increase in net profit margin. However, in 2009 the return on average risk weighted assets increased to 2.68% from 2.41% in 2008. For last few years the Bank continuously improved its leverage position. In 2009, IFIC’s leverage position marginally improves to 14.69 times from 14.74 times in 2008. However, the return on average equity (after tax) increased to 24.33% from 22.62% in 2008.
Exhibit 04: Profitability Ratios
|Return on Average Assets (after tax) (%)|
|Return on Average Equity (after tax) (%)|
|Return on Average RWA (after tax) (%)|
|Net Profit Margin (after tax) (%)|
|Net Interest Margin (%)|
|Asset Utilization (%)|
|Leverage Multiplier (times)|
In 2009 total assets of the Company was BDT 62,901.86 million which was BDT 45,729.47 million in 2008 registering a growth of 37.55%. Bank’s asset composition was mainly dominated by loans & advances, 60.08% (BDT 37,793.89 million) which was 72.20% in 2008, followed by investments 14.44% (BDT 9,082.95 million), balance with other banks & FIs, 12.97% (BDT 8,155.65 million) which was 4.20% in 2008. 85.53% of total cash balance was kept with Bangladesh Bank and its agent banks.
Exhibit 05: Asset Composition
BDT in million
% of Total
% of Total
|Cash in Hand & with BB|
|Balance with Other Banks & FIs|
|Money at Call & Short Notice|
|Loans & Advances|
The total investment portfolio of the Bank in 2009 was BDT 9,082.95 million which was BDT 5,229.88 million in 2008 registering a growth of 104.44%. Of the total investment 95.56% was made in Bangladesh and 4.44% outside Bangladesh. In Bangladesh 86.41% investment was made in govt. securities, 7.83% in quoted securities of different financial institutions, manufacturing and trading corporations.
Exhibit 06: Segregation of Investment BDT in million
% of Total
% of Total
However, 1.32% was invested in unquoted securities of Karma Sangsthan Bank, CDBL, IDLC zero coupon bond and DSE. Though the market value of the portfolio was higher than the cost price, the market value of some individual Company’s shares was lower than the cost price as on 31st December, 2009 against which the Bank maintained sufficient provision. The yield on average investment was 19.42% in 2009 which was 15.27% in 2008.
Of the total outside investment 4.11% investment was made in quoted securities of Nepal Bangladesh Bank Ltd and NIB Bank Ltd. IFIC hold 9.92% and 0.86% of total paid up capital of Nepal Bangladesh Bank Ltd and NIB Bank Ltd respectively. However, only 0.33% of investment was made in unquoted share of Oman International Exchange LLC where the Bank held 25% of total paid up capital.
We review the fundamentals of managing credit risk including qualitative and quantitative analysis as a part of credit risk evaluation. Qualitative evaluation includes credit policy, credit approval and monitoring. We also address intrinsic risk, concentration risk as well as large loan exposures.
Bank’s non-performing loans (NPL) in 2009 reached BDT 2,320.30 million which was 6.14% of total loans & advances (2008:5.92%). Fresh NPL generation (98.78% of total NPL) also increased by 68.55% which was 6.06% of total loans & advances (2008: 4.12%). Of the total NPL 10.78% was substandard, 15.37% was doubtful and 73.85% was in bad & loss category. However, in 2009 IFIC’s cash recovery was 1.12% of total loans & advances (2008:1.14%) and rescheduling was 3.96% of total loans & advances (2008:2.19%). In 2009, IFIC made write off of only BDT 4.90 million (0.01% of total loans).
We look at pre-provision profit (PPP) to net loans & advances for assessing the Bank’s ability to survive in future problems. In 2009 the Bank’s PPP to net loans & advances was 5.67% which was 5.39% in 2008. PPP to net loans & advances indicate that 5.67% of currently performing loans & advances can be written off without charging on Bank’s reserves and equity. On the other hand, Bank’s special mention account (SMA) to loans & advances decreased to 2.11% in 2009 which was 4.83% in 2008.
Loan Portfolio Analysis:
In 2009 the loans & advances reached BDT 37,793.89 million registering a growth of 14.46%. Sector wise distribution of loans & advances reveals that the total portfolio dominated by other loans & advances, 28.76% followed by industry 18.98%, internal trade financing 18.79% and working capital 10.26%. Sector wise NPL rate depicted that transport & communication experienced highest NPL rate 19.16%, followed by working capital 18.25% and industry 7.05%.
Exhibit 07: Loan Portfolio Analysis
|Classified Loans (Gross NPL)|
|Net Non Performing loans|
|Net loans and advances|
|Deposits & Borrowings|
|Deposits & Borrowings (Avg)|
|Interest Earning Assets|
|Interest Earning Assets (Avg)|
|Non-Interest Earning Assets|
|Non-Interest Earning Assets (Avg)|
|Customer Deposits (other than banks)|
Large Loan Exposures:
In 2009 Bank’s top 50 large loan exposures (both funded & non-funded) was BDT 20,663.20 million against sanction limit of BDT 26,959.30 million. Of the total top 50 large loan exposures, BDT 12,602.10 million was funded (33.34% of total loans & advances) and BDT 8,061.10 million was non funded loan facilities. At the end of 2009 all these loan facilities except one were reported as unclassified. CRAB has observed that outstanding amount of 11 loans had excesses over sanction limits as of 31st December 2009.
In 2009 Bank’s total capital (tier I & tier II) was BDT 4,928.76 million against the required capital of BDT 3,652.16 million. The Bank’s capitalization was satisfactory as the risk weighted capital adequacy ratio (under Basel I) was 13.50% which was 12.40% in 2008 as against regulatory requirement of 10%. The Bank continued to declare stock dividend for the last couple of years to increase paid up capital. During the period under review the growth in Bank’s risk weighted assets and capital was 19.36% and 29.94% respectively. In 2009 Bank’s risk weighted assets to total assets and equity to total deposits & borrowing were 58.06% and 8.19% respectively.
Exhibit 08: Capital Adequacy Ratio
|RW Capital Adequacy Ratio (%)|
|Internal Capital Generation (%)|
|Shareholders’ Fund to Deposit and Borrowings (%)|
|Risk Weighted Assets to Total Assets (%)|
|Risk Weighted Assets to Total Equity (times)|
|Tier I to RWA (%)|
|Tier II to RWA (%)|
Funding & Liquidity:
IFIC is mainly funded through customer deposits and internal capital generation. In 2009 IFIC’s total deposits increased by 38.58% to BDT 50,017.96 million from BDT 36,092.17 million in 2008. Of the deposit mix of the Bank, 40.24% was collected from fixed deposits registering a growth of 27.62%, followed by term deposits 27.73% registering a growth of 85.95% and savings deposits 16.33% having growth of 26.70%.
Exhibit 09: Deposit Mix
BDT in million
% of Total
% of Total
The loans & advances to deposits ratio of the Bank was 75.56% at the end of 2009. However, the average loans & advances to deposit ratio was 79.32%. The Bank was net lender to the call market throughout 2009 except in November and December.
Interest Rate Risk:
The Bank had assets sensitive position in all the buckets except 1 to 12 months bucket. The net gap indicates that the Bank will be benefited on rising interest rates and will suffer on decreasing interest rate scenario. For 1 percentage point interest rate increase the Bank will lose BDT 24.92 million and will gain the same amount for 1 percentage point interest rate decrease.
As a commercial bank, the Bank is exposed to potential changes in earnings arising due to change in market price of currency and the position in the currency that is held during the changes. The Bank possessed overall net positions of BDT 554.99 million in different currencies which was 13.72% of core capital. As on 31st December 2009 the Bank possessed this position only in short term. The Bank’s overall net position was dominated by US Dollar, 7.78% of core capital.
Off Balance Sheet Exposures:
In 2009 IFIC’s total contingent liabilities reached BDT 21,366.73 million which was 33.97% of total assets. In 2009 contingent liabilities portfolio was dominated by letter of credit, 12.07% (BDT 7,593.75 million) followed by acceptances & endorsements 10.75% (BDT 6,762.87 million), bills for collection, 6.08% (BDT 3,823.52 million) and letter of guarantee, 5.07% (BDT 3,186.60 million) of total assets. However total contingent liabilities of the Bank was 4.34 times of total capital.
Exhibit 10: Off Balance Sheet Exposure
BDT in million
% of Total Assets
% of Total Assets
% of Total Assets
|Acceptances & Endorsements|
|Letter of Guarantee|
|Letter of Credit|
|Bills for Collection|
Market Share & Growth:
In 2009 the industry growth rate in loans & advances was 18.26% whereas the Bank’s loans & advances had a growth of 14.46% in 2009.
Exhibit 11: Market Share
|Loans & Advances (%)|
On the other hand, in 2009 the Bank’s market share in loans & advances decreased to 1.49% from 1.54% in 2008. The banking sector deposits growth was 22.33% in 2009 whereas the Bank had a deposit growth of 38.58% and the market share of the Bank in case of deposits was 1.74%.
Two parts are included in the quantitative analysis of IFIC Bank Ltd.:
- Ratio Analysis
- Credit Rating based on Regression model.
Ratios provide meaningful relationship between individual values in the financial statements. By ratio analysis we measure the performance of the firm on historical basis. Ratios provide better performance measurement than absolute numbers.
In Quantitative analysis, we have set up a multiple regression equation with peer groups with their respective credit rating. The ratios are used as independent variable in the model.
Assign Rating No: Used for Rating
Ratios Used for Rating:
|Independent variables name|
|X1||Return on average assets|
|X2||Return on equity|
|X3||Rate paid on Fund|
|X4||Net interest Margin|
|X5||Provision for loan losses|
|X6||Total capital to Total Asset|
|X7||Loan to assets|
|X8||Capital adequacy Ratio|
|X9||Loan/credit to deposit ratio|
|X10||Total Asset to Total equity|
|X11||Classified loan to Total loan|
Weight of Ratio Analysis:
|Return on average assets|
|Return on equity|
|Rate paid on Fund|
|Net interest Margin|
|Provision for loan losses|
|Total capital to Total Asset|
|Loan to assets|
|Capital adequacy Ratio|
|Loan/credit to deposit ratio|
|Total asset to total equity|
|Classified loan to Total loan|
|KEY TO SUCCESS FACTOR|
|EVALUATION OF MANAGEMENT|
TOTAL COMPOSITE CREDIT RATING:
Ratings Awarded From Our Analysis:
Long Term Credit Rating: “A1
We have assigned the long term rating of International Finance Investment & Commerce Bank Limited (hereinafter also called as IFIC or the Bank) at “A1”. We performed the rating based on latest financial statements and other relevant information Commercial Banks rated ‘A1’ has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than Commercial Banks in higher-rated categories. A is judged to be of high quality and are subject to low credit risk. The rating also factors the satisfactory profitability and liquidity position. The rating however is constrained by dependency on investment income and higher rescheduling. Net interest margin of the Bank decreased to 2.72% in 2009 from 3.56% in 2008 and the asset utilization of the Company decreased marginally. Though the asset utilization has decreased in 2009, IFIC’s return on average assets (after tax) increased to 1.66% from 1.53% due to increase in net profit margin. The net profit margin increased because of increase in operating income which was backed by sharp increase in investment income. In 2009, IFIC’s leverage position marginally improves from 2008.