Listed non-bank financial institutions posted a huge decline in profit in the first half this year, weighed down by liquidity challenges, a bearish stock market and rising bad loans.
Of the 23 listed NBFIs, profits of 13 declined while three saw their losses widen further, according to data from the Dhaka Stock Exchange.
Only three non-banks witnessed an increase in profits and two returned to black.
“A bearish capital market and rising cost of funds for the NBFIs largely affected the sector's profitability,” said Arif Khan, chief executive officer of IDLC Finance, a leading NBFI.
Income from the capital market in brokerage commission and capital gains dropped in the first half of the year. Moreover, some NBFIs had to keep provision for incurring losses in the capital, which squeezed their profit.
DSEX, the benchmark index of the Dhaka Stock Exchange, declined 13.57 percent in the first half of 2018. A year earlier, it rose 11.25 percent.
The fall of the key index eroded incomes of the NBFIs from the stock market. Investment income, which mostly comes from the outlay in the stock market, plunged for most NBFIs during the period.
For example, investment income of International Leasing and Financial Services fell 87.03 percent, Bay Leasing's 79.52 percent, Union Capital's 72.88 percent, Islamic Finance and Investment's 64.03 percent, LankaBangla Finance's 47.88 percent, Uttara Finance's 17.26 percent and DBH's 16.67 percent.
“All sorts of income from the stock market were affected,” said Khwaja Shahriar, managing director of LankaBangla Finance, adding that NBFIs with larger investment in the stock market were hit the hardest.
The provisioning against bad loans and other assets widened in the period, dragging the profit of the institutions down.
The liquidity crisis in the money market hurt the NBFIs' income too as most of the institutions had to borrow funds from the banking sector at higher interest rates, he added.
The cost of funds for the NBFIs rose in the first half because of the challenging liquidity situation, said Khan of IDLC.
Many NBFIs also witnessed a decline in net interest income in the first half of 2018.
For instance, the net interest income of Midas Financing plummeted 44.50 percent, Premier Leasing's 26.84 percent, Bay Leasing's 12.83 percent and DBH's 11.99 percent.