We were hopeful in the beginning of 2020 that we would do much better in 2020 by overcoming all of the recognized challenges. Then COVID 19 shakes the world along with Bangladesh in first quarter of 2020 and changes the game plan entirely. We are now in a mystifying uncertainty in terms of global and country economy. Accordingly, we have to revise our strategies and action plan by considering the possible impact of COVID-19. The possible impact of this on us and how we will overcome this uncalculated challenge is outlined in Note # 42 (e) to the financial statements in page 289.

In a nutshell, COVID -19 will affect our Company in many folds: it will hamper cash inflow from installments which will increase SMA and NPL resulting higher provision (unless regulator give any exceptional exemption), incremental business will be jeopardized as cash outflow may be more from high amount of deposit encashment than cash inflow from loan installments and as fresh deposit mobilization and borrowing from bank & other sources will be significantly low and all earnings from capital market operations including brokerage commission, fees for professional services, dividend and capital gain will be significantly reduced. As a result, cost to income ratio will be increased which will affect bottom line. To combat against these adverse effects, we have taken new strategies and action plans that will be discussed later in this review.

In 2019, we emphasized on maintenance of asset quality, improvement in profitability, reduction of exposure in capital market, maintenance of hefty amount of subordinated debt which contributed to a strong balance sheet which in turn improves Capital Adequacy Ratio (CAR) of LBFL by 0.9% and takes it to 16.40% in 2019 from 15.49% of 2018 and also increase CAR of LBFL group to 16.75% in 2019 from 16.18% of 2018.

Credit Rating Agency of Bangladesh (CRAB) has been rated LBFL “AA3” for long term and “ST-2” for short. Achieving SAFA, ICAB, ICMAB Award for best presented Annual Report and Corporate Governance for last few consecutive years proved our consistent accountability to stakeholders in terms of transparency and integrity. It is noteworthy to mention that we became First in SAFA for best presented annual report for 2018.

Year-end Highlights-2019:
As on December 2019, our SME portfolio stood at BDT 17,847 million, showing a growth of 2% from last year. In order to exploit the huge opportunities in SME sector, we deployed different strategies aimed to grow and achieve a diversified portfolio. These strategies are aligned with our endeavour of increasing geographical footprint. We are planning to ensure our presence in the major SME business hubs all over the country.

In 2019, we focused heavily on both SME and personal financial services specially credit card. Total retail asset disbursement was 13,680 million which is 4% higher than that of 2018. Our credit card portfolio continued to show significant growth to reach BDT 4,118 million in 2019 with its client base growing sharply. That portfolio increased by BDT 510 million in 2019 which is 14.12% higher than BDT 3,609 million of 2018. Annual card usage stands at 9,990 million which was 21.4% higher than usages of 2018. In 2019 we disbursed total BDT 16,094 million corporate loan with increasing our exposure to Transport and Aviation, Electronic, Pharmaceutical and Chemical industry along with Garments and Jute industry significantly as part of our prudent corporate investment strategy.

One of our major strategies for 2019 was to ensure that branches play a bigger role in promoting retail and SME lending and driving medium term business goals. We have achieved that by empowering branches more and more. Now branches can work independently and act as a single touchpoint for all sort of customer services from product acquisition to delivery to closing procedures.

At the very beginning of 2019, we have borrowed USD 19.98 million equivalent to BDT 1,675.72 million against a foreign currency loan from Islamic Corporation for the Development of the private sector (ICD), a wing of Islamic Development Bank. This is the first time ICD has lent to any FI of Bangladesh.

During this toughest time of liquidity management, we aim to maintain reliable and consistent relation with bank and financial institutions that helps us to maintain year-end consolidated borrowing balance of BDT 18,672 million out of which BDT 9,317 million were unsecured. Separat balance of borrowing from bank and financial institutions stood at BDT 15,613 million at the end of 2019 which is 24% higher than that of 2018. All these implies our capacity to retain strong liquidity position and prospective growth.

We have served around 152,111 number of clients in 2019 which was 130,130 in 2018, an increase by 17%.

Financial Highlights:
We have been able to keep the confidence of our stakeholders with strong balance sheet and profitability despite we have dealt with various obstacles such as reducing spread, bearish capital market, liquidity crisis, increasing cost to income ratio etc. Our standalone net profit increased to BDT 736 million in 2019 which is BDT 22 million higher than net profit of 2018 thus return on asset stood to 0.91% in 2019 which was 0.89% in 2018.

Our endeavour reflected in the growth of returns. Consolidated Return on Asset and Return on Equity was 0.59% and 5.27% in 2019 which was 0.51% and 4.90% in 2018 respectively. We have ended the year with standalone EPS of BDT 1.43 and consolidated EPS of BDT 0.98 which was BDT 1.40 and BDT 0.85 respectively in 2018.

Separate NAV was 19.52 while Consolidated NAV was 18.48 in 2019. Though non-earning assets increased during the year, we have managed to keep NPL at 5.59% against the industry average of 9.5% as on December 31, 2019. Even in severely dehydrated market, we were capable to disburse BDT 33,666 million loan and advances.


Other major highlights are shown below

• Revenue

  Consolidated revenue for 2019 has been BDT 11,757 million which shows a growth rate of 6.3% from the previous year, of which 87% was from interest earning products, 3% from investment income, 4% from commission & brokerage income and rest 7% from other income sources. Standalone revenue grows to BDT 10,333 million which is 11.92% higher than revenue of 2018.

• Profitability

  The Company shows impressive profitability with higher interest margin. Consolidated net profit after tax increased to BDT 508 million in 2019 which is 14.35% more than that of 2018. Standalone net profit after tax stood at BDT 736 million which is 3.06% higher than last year profit of BDT 714 million.

• Portfolio

  As the market experienced dryness throughout the year, our standalone asset portfolio little bit decreased by 5% to stood BDT 60,662 million at the end of the year 2019 which was BDT 63,785 million in 2018. Our SME portfolio increased to BDT 17,847 million in 2019 which is 2% higher than BDT 17,514 million of 2018. Our corporate portfolio decreased by BDT

• Portfolio

  549 million in 2019 to stood at BDT 18,172 million at the end of 2019 which is 3% lower than BDT 18,721 million of 2018. Card portfolio impressively increased to BDT 4,118 million which is BDT 510 million higher than 2018. That is 14.1% higher than BDT 3,609 million of card portfolio of 2018 while overall retail portfolio decreased to BDT 24,643 million which

• Portfolio

  is 11% lower than last year.
  Consolidated portfolio reduced to BDT 65,117 million in 2019 which was BDT 68,676 million in 2018 decreased by 5%. We have reduced our margin loan exposure by 26% in 2019 to keep in BDT 1,144 million which was BDT 1,538 million in 2018.

• Liquidity and Capital Adequacy Ratio

  Capital Adequacy Ratio (CAR) for 2019 stood at 16.40% on separate basis and 16.75% on consolidated basis against 10% requirement as per BASEL II which was 14.49% and 16.18% respectively in 2018. This shows the strength of Capital and the level of compliance of LankaBangla with the regulatory requirements with regards to a sustainable growth.

• Share Performance

  Market price of our share had shown fluctuation throughout the year from BDT 14 to BDT 29.7 which finally settled at BDT 18 in the end of 2019.

• ROA

  For the year 2019, our Consolidated Return on Assets (ROA) was 0.59% compared to 0.51% of 2018. Separate Return on Assets (ROA) was 0.91% compared to 0.89% of 2018.

• ROE

  LBFL’s individual Return on Equity (ROE) was 7.23% in 2019. Consolidated Return on Equity (ROE) for the year 2019 was 5.27% which was 4.90% in 2018 and its five-years cumulative average growth rate was 10.90%.

• EPS

  Consolidated Earnings per Share (EPS) for 2019 stood at BDT 0.98 compared to BDT 0.85 in 2018. Standalone Earnings per Share (EPS) for 2019 stood at BDT 1.43 compared to BDT 1.40 in 2018. 2.12% growth in EPS implies our commitment to enhance shareholders’ wealth.

• Fund Under Management

  Due to dry market reduced asset disbursement, our Fund Under Management decreased to BDT 139,105 million in 2019 which was 145,890 million in 2018.

Activities of Subsidiaries:
With the launching of fund management service through LankaBangla Asset Management Company Limited, LankaBangla befitted the pioneer financial institution in Bangladesh to operate at full capacity in capital market of Bangladesh.

LankaBangla Securities Limited (LBSL) maintained its leadership in both of the exchanges (DSE & CSE) in terms of transaction value for the last 14 years.

LankaBangla Investments Limited (LBIL) kept its leading position in Corporate Advisory Services through Primary Market Services (PMS) and Investment Banking Services (IBS) throughout the year 2019. In extreme bearish capital market LBIL successfully arranged BDT 920 million for Kushiara Power Company Limited through preference share, completed merger of six companies of Confidence Group, besides IPO, right issue and advisory services to its clients. Gradually this merchant banking wing of LankaBangla Finance Limited is focusing on non-funded earning sources more than fund based earning sources. In the middle of the year, LBFL restructured its loan facility to LBIL amounting BDT 1,865 million which has counted as most vital support for LBIL’s financial health.

LankaBangla Asset Management Company Limited (LBAMCL) has passed another challenging year which is its third year in the Asset Management industry with wealth management products gaining increasing popularity amongst the investor community. With the declining broad market index by ~18% its two Unit Fund showed sluggish performance in 2019. Still, LBAMCL launched the country’s first private equity (PE) fund, LankaBangla 1st PE Fund, with fund size of BDT 250 mn and a tenure of 10 years. It managed to receive registration certificate for launching new unit fund, “LB Gratuity Opportunities Fund” with an initial fund size of BDT 200 millions, successfully launched discretionary corporate fund management services under “Maximizer” and “Prudent” with an initial AUM of BDT 314 million.

In 2020 LBAMCL expected to launch another unit fund, “LB Gratuity Wealth Builder Fund” with initial fund size of BDT 100mn and bring in sizable funds under corporate fund management services. As part of diversifying its product offerings, LBAMCL will also introduce a new wealth management service dedicated to High Net Worth Individuals (HNIs) of Bangladesh.

Advancement in utilization of technology
As we are ambitious to provide optimum customer service with the help of latest technology, we have been continuing to upgrade our IT backbone in 2019. We have started to exploit fully implemented Tranzware Project for credit card operation. Our card holder now can make online local transaction with LankaBangla credit card. For better internal control, faster transaction recording process, on time and accurate reporting, we have made IFS (ERP) project to Go Live in first quarter of 2019.

Economic Outlook and Competitive Challenges for 2020
Before COVID 19 pandemic, the economic outlook was very challenging. Public borrowing from bank shortened money available for credit to the private sector. This along with high rate of NPLs (almost double digit) reduced private sector investment growth which was 23.5% in 2019. That corroborated declined of private sector credit which recorded 11.3% growth in 2018-19 which is significantly lower than 16.9% of last year.

Foreign remittance reduced current account deficit of Bangladesh in 2019. Still for massive public borrowing the competition in collecting fund rises in financial industry, borrowing cost rose gradually in 2019 which may reduce in 2020. Political condition is expected to be stable in 2020 like 2019 as we passed national election in late 2018.

COVID 19 has worsen the situation much as the entire economy has started to feel the vibe. Export from RMG has decreased significantly from the mid of 1st quarter of 2020, economic activities were almost stopped for 2 months other than some emergency sectors including agriculture and pharmaceuticals. Growth projections of global economy for 2020 is (–) 3.0% plummeted from (+) 2.9% in 2019. Most of the economists of western countries opined that economic recovery from COVID 19 will be “U” shaped (slow recovery) rather than “V” shape (quick recovery). Also those economists did not rule out “W” shaped recovery (quick recovery, again fall and again quick recovery) or “L” shaped recovery (longer recovery) if COVID- 19 makes an outbreak again in next winter or if there is significant delay in inventing the relevant vaccine to neutralize this virus. IMF and World Bank both projected that Bangladesh will have a GDP growth of 2% to 3% for 2020 fiscal year although Government of Bangladesh said it would be around 6% instead of budgeted GDP growth of more than 8%.

Government has announced more than BDT 1 trillion economic stimulus package which is mostly bank loan dependent. Also Government has announced its budget for the fiscal year of 2021 where there is a huge deficit mostly to be financed from domestic banking system. This means that pressure on liquidity in banking sector will be more and there will be less chance of high private credit growth in coming year.

LBFL’s strategy in Changed Economic Scenario
LBFL is seeing this pandemic as an opportunity to rethink and redesign the business in such a way that will ensure more productivity, effectiveness, efficiency and sustainability. The Company will endeavour to transform its current business model to a fintech based business model and interacts with customers from business sourcing to after sales service through digitally as much as possible. The Company will work in 2020 in order to achieve such a goal. Some of these efforts will involve adoption and exploitation of artificial intelligence, block chain technology, cloud technology, machine learning systems, digital wallet etc.

We will continue to search new and cheap source of fund, would remain cautious in lending by keeping in mind possible impacts of COVID -19 on the potential borrower and by prioritizing areas where Government has declared stimulus package.

While we will invest more on technology to ensure seamless operations and customer service and to be a fintech based organization, cost optimization will be one of our top strategies in 2020. We will review our space requirement both in head office and branches across the country and reduce or relocate offices or re-negotiate with existing land owner to save rental expenses to a great extent.

Instead of opening traditional branches, we will prefer to expand our geographical reach through successful implementation of hub and spoke model. Through this model, we will create many spokes across the country which will be served by a hub. Existing all branches will be converted either in hub or spoke depending on the location and more hubs will be created to support the spokes. This strategy will not only support huge business growth but also helps the Company to reduce cost to income ratio significantly which will ultimately increase the bottom line.

We will also optimize our costs in every possible single head by balancing well trade-off of efficiency vs. productivity. Priorities will be given to reduce discretionary costs that are normal in usual environment but abnormal during overall slowdown of macroeconomic and industry specific environment. HR strength will be well maintained as employees are our most precious assets by keeping them safe from the pandemic by adoption of remote office concept, taking full preventive arrangement for those who will do physical office, keeping employees engaged and developed through e-learning systems, delegation of authorities and responsibilities to enable them to help the Company to combat against the adverse consequences of the pandemic.

Beside all these, we will give our all-out efforts for mundane but quite important job of collection and recovery of overdue. This is the most important tasks in the changed scenario as most of the businesses including SME and corporate will face severe cash flow problem which will ultimately result in overdue. Also, we will continue our well maintained relationships with all of our funding partners including banks, large corporate houses, lender of bond, foreign lender etc. to manage cash in a manner that will help the Company to avoid any liquidity shock.

Appreciations
Synergy of unswerving contributions from all of our stakeholders puts us to the path of durable growth making us even more confident in achieving long sustainable and superior return. I sincerely thank the Board of Directors, members of Management Committee and all members of our staff for their contribution.

Finally, none of this would have been possible without our investors, loyal customers and all other stakeholders who have pledged their confidence constantly in LankaBangla brand. We look forward to continue our journey towards mutual growth and prosperity and hoping that we can overcome the adverse consequence of COVID 19 together.

Thank you!
Khwaja Shahriar
Managing Director & CEO