The two year-long worldwide response to the pandemic exemplified everything great and inspiring in the human spirit. A spirit that was evident in our Company's activities and results throughout the year. Our Company's people and systems have been battle tested and are now better prepared to face any competitive threat or major external interruption as a result of this pandemic. It has reinforced internal relationships, opened better vistas of cooperation, and assured our stakeholders that our people deliver – no matter what! That is our best guarantee of long-term sustainability and collective prosperity.

Dear Stakeholders,

While writing its annual report for the 25th consecutive year, we, at LankaBangla, recount stories of 'growing together' weathering any storm, thanks to the unwavering support of its stakeholders, customers, regulators, government, and society.

As a whole, 2021 has been a year with mixed experience, with the pandemic's recurrent shocks, attempts to overcome people's unfathomable sufferings, and attempts to bounce back in the game to improve the economy. We, at LankaBangla, along with implementing strenuous approaches to emerge successful and cope from the fragility of the erratic economic condition, made sure to prioritize our stakeholders’ health, needs and safety over revenues and incomes.

We were successful in achieving the goals we had set for 2021, for all of its subsidiaries, depicting the efficiency and efforts of the Group, as a whole. Revamping and strengthening human capital with various functional rotations, onerous and relentless collection efforts, exploiting bullish capital markets, outstanding performance and enhancement in the asset portfolios primarily driven by retail and SME growth and excellent IT support were all underlined in the success literature.

Operating Environment in 2021

We all know that, during 2021 the world put endeavors to get life normal with a view to regaining momentum of economic growth amid second wave of disastrous pandemic utilizing the experience and knowledge of combating it since 2020. Extensive vaccination programs gave people the confidence to participate in outdoor activities, and the government's record fiscal stimulus package of USD 1,895 bn to absorb the pandemic's economic shock gave the soaring Bangladesh economy a new pulse during the year 2021, with significant support from robust remittance inflows and a recovery in the export market. All these efforts aided to the economy's steady recovery.

Combating with other economic contraction, Bangladesh managed to attain a real GDP growth of 6.1%, which is significantly higher than the preceding year (5.2%). Even during the pandemic, our GDP was outperforming the GDP of many of our regional peers. We also observed a record height of remittance inflow of USD 22.07 bn exceeding record of 21.74 bn of last year despite the slowdown of the earning in the second half of 2021 according to Bangladesh Bank data. That vastly contributed to the increase of our foreign exchange reserve to USD 46,153.90 mn. The outstanding performance of RMG sector drove a strong increase in export earnings, as the value of the items surged. Bangladesh Bank also enhanced the size of Export Development Fund to support exportmanufacturer of the country which resulted in an increase in the Current Account Balance as well.

Following the reopening of the economy, the capital market in Bangladesh has seen remarkable performance, ranking as one of the top performing markets in South Asia, with its major bourse Dhaka Stock Exchange (DSEX) which advanced by 25.08 percent from last year to close 2021 at 6,756.65 points. The DSEX hit a record high of 7,367 points on October 10, 2021. The total number of securities traded on the Dhaka Stock Exchange increased from 597 in 2020 to 616 in 2021. The DSEX's market capitalization has also risen to an all-time high of BDT 5,863 billion. Hence, we at LBFL were able to exploit the bearish capital market this year, which contributed to our profitability as a whole.

One of the burning issues in LankaBangla, as well as in the nation, was to deal with the improbable economic condition and its impacts as a whole. To assure a better prognosis, we needed to devise an unrivaled approach. We were able to recover from the issue and emerge as a successful organization overall by focusing on utilizing our primary earnings generators as well as exploiting the capital market condition.

Despite the recurring COVID-19 shocks and ongoing confinement measures such as restricted mobility and widespread shutdowns, our market liquidity improved considerably, boosting people's living conditions and, as a result, their loan appetites. On the heels of the eased policy of last year, Bangladesh Bank lifted the cap on asset classification during the last of 2021 guided to keep additional provision against loans under certain classification status. That increased the provision charge for loan and advance significantly in 2021 which impact our bottom result compared to last year.

People became more assured as the economy improved, which reflected well in their overall consumption, leading to a rise in disbursement in comparison to the prior year. In the previous year, one of our main focus was to maintain our asset quality through ensuring proper collection on a regular basis along with rigorous monitoring. With prudent collection strategy implementations, we showcased an efficiency of 8.53% growth than 2020 in our collection process. Posting a 33% uptick in Group net profit over 2020, the Group and standalone Capital Adequacy Ratio (CAR) stood at 17.80 % and 16.89 %, respectively, meeting the requirement of 10% CAR set by Bangladesh Bank, eventually strengthening our balance sheet a little further, and receiving "AA3" credit rating for long-term and "ST-2" credit rating for short-term ratted by the Credit Rating Agency of Bangladesh (CRAB) demonstrate enormous endeavor and strategic agility of LankaBangla Group.

Year-End Highlights-2021

Retaliating pandemic’s effect on health and economy with private and public joint endeavors, government grants, and foreign remittance showed success in 2021 as liquidity situation alleviated which reflected positively in people's consumption behavior along with increased loan appetite of business and consumer clients.

As a result, our asset portfolio expanded by 7.43% to BDT 58,775 million at the end of 2021, compared to BDT 54,709 million of 2020 through increased disbursement of BDT 34,269.29 million in 2021 compared to 2020. That aided to increase our fees income by 23% in 2021 than that of 2020.

In 2021, we have encountered a lot of intense competition for keeping margin, retaining asset client through checking take over by competitors, mobilizing low cost fund which in consequence dropped our net interest income by 7%. Increased fees income supported by high disbursement volume, optimized operational expenses, utilization of bearish capital market ultimately contributed to our lucrative profitability in 2021.

While we were dealing with an unsteady economic condition due to the constant resurgence of the pandemic, we managed to receive a total foreign term loans of BDT 3,487 million throughout the year from Blueorchard Microfinance Fund, Healthier Lives DAC for Financing and responsAbility Investments AG, all against a five-year tenure, further demonstrating our creditworthiness even during such wobbly condition.

We were able to mobilize BDT 21,852.19 million deposits where retail term deposits contributed 51.08% of the total mobilization, highlighting the depth of our clientele even more. We have settled previously issued zero coupon bond as well as other obligations. This year, we saw an increase in our bank borrowings, demonstrating that we were able to create an excellent working relationship with our long-term lenders alongside displaying a show of our credit worthiness, thanks to our excellent credit rating.

The provision growth that resulted from the Bangladesh Bank's direction to charge 2% provision against unclassified loans which repaid 15% of their due in 2021 caused a significant increase in our provisions for loans and leases. We have ensured rigorous monitoring, ran various campaigns for regularized collection which ensure up-keeping of asset quality. Also, we have benefited from restructuring our collection and monitoring functions and held all business personnel responsible for follow up of overdue and ensure collection from over-dues. That helped to keep our standalone NPL to 6.57% up from 4.70% in the preceding year even after the impact from lifting cap on asset classification in 2021 by regulator.

Despite the unpredictable state of the economy in 2020, and the uncertainty that pervaded many around the country, we aimed for growth in newer faces around the company and had 317 new hires compared to the previous year, with 78 new employees, a momentous growth indeed. This demonstrates the reputation we have been able to establish over the last two decades, as proven by the faith our shareholders have placed in us, as well as our commitment to keeping our stakeholders' interests and benefits at the forefront of our priorities.

The call centers worked tirelessly behind the scenes to ensure customer safety, receiving 13,180 calls more than 2020 and gaining 215 new customers as a result of their efforts, culminating in a customer satisfaction score of 91.66 percent and a call quality score of 86.67 percent. In 2021, the LBFL organized 81 training programs, the majority of which was e-learning focused.

LankaBangla Finance Limited achieved the joint first position in the Corporate Governance Disclosure Category for Best Presented Annual Reports in 2020 at the 21st ICAB National Award hosted by the Institute of Chartered Accountants of Bangladesh (ICAB). LankaBangla Finance also received the second position under the Integrated Reporting category and Certification of Merit in the Financial Service Sector Category for Best Presented Annual Reports in 2020. LankaBangla Finance Limited also achieved 1st runner up position in the SAARC Anniversary Award for Corporate Governance and 2nd Runner Up position in the Integrated Reporting award for 2020 awarded by South Asian Federation of Accountants. LBFL also received ICMAB Best Corporate Award 2020. These awards and achievements demonstrated our consistent accountability to stakeholders in terms of transparency and integrity.

Financial Highlights
High volume of disbursement, increased fees income, prudent utilization of capital market and optimization of operating expenses contributed to our bottom result and to keep hope of our stakeholders on our expert management team.

Our consolidated net profit increased to BDT 1,305 million which was 33% higher than that of 2020, when our standalone net profit was BDT 609 million in 2021. Thus, contributed to BDT 2.38 Group EPS and BDT 1.13 standalone EPS which were BDT 1.81 and 1.53 in 2020, respectively. Our endeavor reflected in the growth of returns as consolidated Return on Asset and Return on Equity was 1.53% and 12.60% in 2021 which were 1.17% and 10.02% in 2020 respectively. Standalone Return on Asset and Return on Equity stood to 0.76% and 5.66% in 2021 respectively.

We took full advantage of the opportunity and exploited the bearish capital market with 286% growth in investment income with significant reversal of provision charged for diminution in value of investments. The consolidated NAV restated as of the 2021 was BDT 19.82 up from BDT 18.64, and the separate NAV restated on 2020 was BDT 19.39 which later on increased by 5.99% resulting the separate NAV as of the year 2021 reaching at BDT 20.55.

Other major highlights are shown below

• Revenue

  Our net interest income decreased by 7% to BDT 2,019 million, compared to BDT 2,174 million in 2020 due to a significant surge in interest suspense (40%) as a result of lifting up of relaxation in provisioning. However, still we could manage 6.24% growth in total revenue and 46% growth in total operating income thanks to utilizing opportunity of bullish capital market which resulted massive growth in income from investment and commission income and sizeable amount of other operating income from fresh loans and takeover loans.

• Profitability

  The operating expenses increased by 20% from the previous year, owing to the fact that the capital market thrived and surpassed many of its regional peers, and its activities were in high gear. Due to enhanced of provisioning regulations in 2021, quality of assets was impaired to some extent as many customers specially SME and emerging corporate clients were affected as a result of COVID-19 pandemic. Thus NPL surged to 6.57% up from 4.70% a year ago.

• Profitability

  This results additional provision of BDT 454 Mn. We have also kept additional provision of BDT 125 Mn against margin loan. On the other hand, we were also able to cut the provision for diminution in value of investments by 73% compared to previous year. Although we achieved 46% growth in total operating income, we could manage to retain 33% growth in profit after tax (PAT) due to surge in opex and provisioning.

• Portfolio

  Because the market was liquid and living conditions improved over time, the odds were in our favor, as can be seen by our asset portfolio increasing by 7.43% to BDT 58,775 million in 2021, compared to BDT 54,709 million in 2020. This boost aided our disbursements, which rose to BDT 34,269 million from BDT 22,007 million in 2020.

• Portfolio

  Our disbursement to retail segment, which accounted for over 43.59% of total disbursements in 2021, is a notable contributor. The key driver in our retail financing disbursement was the credit card, which accounted for 74.15% of all retail financing disbursement performances. Along with retail finance, our whole SME portfolio was a significant contributor to the asset portfolio's better performance, contributing around 33.51% of the total asset portfolio, which was 32.31% in 2020.

• Credit Quality and NPL

  As a result of the Central Bank's loan provisioning criteria, our asset quality has dropped slightly from the previous year, and our standalone NPL ratio now stands at 6.57%, from 4.70% previously. Though the quality has reduced, our constant efforts to improve our collection policy has paid off, and the economic benefit has more than compensated for the quality decline.

• Liquidity and Capital Adequacy Ratio (CAR)

  The capital adequacy ratio (CAR) for the year 2021 stood at 17.80% on a Group basis and 16.89% on a standalone basis, exemplifying that we are well above Bangladesh Bank's requirements for a minimum 10% CAR and outlining the fact that the Company has been able to weather any storm as it already has in such bleak times for the past few years.

• Share Performance

  Market price of our share had shown fluctuation throughout the year and during lockdown, it went down to BDT 24.9 whereas, it started the year with price of BDT 32.70. Finally, market price settled at BDT 37.30 in both DSE and CSE at the end of 2021 yielding annual return of 14%.

• Return on Asset (ROA)

  In 2021, standalone ROA stood at 0.76% while consolidated ROA stood at 1.53%.

• Return on Equity (ROE)

  The standalone ROE in 2021 was 5.66%, whereas the consolidated ROE stood at 12.60%.

• Earnings Per Share (EPS)

  LankaBangla’s standalone EPS for the year 2021 was BDT 1.13 compared to the standalone EPS of 2020, which was BDT 1.53. Meanwhile the consolidated EPS soared to BDT 2.38 in 2021 as opposed to BDT 1.81 in 2020.

• Fund under Management (FUM)

  Owing to the heave in the asset disbursements and increment of bank borrowings in 2021, the fund under management witnessed an upsurge of 7%, soaring to BDT 154,982 million, up from BDT 144,777 million in the previous year. This increase exemplifies the tenacity of our asset management during these strenuous times.

Activities of Subsidiaries:
Detail activities and performance of subsidiaries are given in pages no 423 and 226 respectively.

Communal Engagement
We believe that we have responsibilities toward the underprivileged people in the society and we aim to help them by contributing to their education, health, income-generating activities and rescuing them from disasters. Besides, we also undertake programs to reduce greenhouse emissions in the environment through taking green initiatives.

As per Group policy, in every year, LBFL and its subsidiary LBSL transfer 1% of its Net Profit After Tax (NPAT) to the LB Foundation for CSR purpose. We have already amended our CSR policy and aligned it with CSR regulations of the Bangladesh Bank. As per the revised policy, a separate CSR committee of Sustainable Finance Committee (SFC) members is formed, which will assist the Sustainable Finance Unit (SFU) in planning CSR activities, budget allocation, implementation, and overall monitoring of the said activities in order to establish better communal stewardship.

Journey towards Sustainability
At LankaBangla Finance, we value the term “sustainability” every day in every aspect of our business by maintaining a corporate culture of consistent conduct. We give equal importance to meeting the expectations of all stakeholders. We are happy to partner with the Global Reporting Initiative (GRI) to prepare our 1st sustainability report by complying with its sophisticated standards.

Sustainability reporting is a key tool that covers the setting of goals and measurement of outcomes on material parameters of ESG goals. Employment and employee rights, consumption of natural resources and carbon emissions, environment preservation, communal engagement, anti-corruption, compliance, etc. are usually treated as ESG goals for an organization like LBFL.

Economic Outlook and Challenges for 2022
As the country, coped with the unstable state of the economy, trying to wash away the remnants of the pandemic's influence on our economy in 2020, which we were still dealing with in 2021, we noticed that the market condition was gradually improving, and people quickly gained more confidence. As the economy rebounds from the coronavirus pandemic, the government has set a target of 7.2% growth in FY22. The government's concentration on massive infrastructure projects, on the other hand, could bode well for foreign investment in the future periods. In FY22, the government is likely to continue investing on COVID-19 relief measures.

The country's per capita national income increased to USD 2,227 in FY21, up from USD 2,024 the past fiscal year. A trend forward into formal remittance channels, as well as the Bangladesh Bank's 2% cash incentive for inward remittances, drove remittances to a record high of USD 22.07 billion in 2021. However, if the net outflow of migrant workers slows in FY22 and the usage of formal payment channels reduces as travel restrictions are removed, the upward trend in remittance inflows is unlikely to be repeated. Over the foreseeable future, the budget deficit is expected to continue above 5.5% of GDP. Continued VAT and income tax policy and administrative reforms will enhance revenue mobilization, while increased capital investment in infrastructure megaprojects will undoubtedly raise government spending.

However, we did notice that the inflation rate is steadily increasing due to the upheaval in the supply chain, which has resulted in a global spike in commodity prices, which is further being exacerbated by currency devaluation. Despite the fact that market conditions were substantially liquid and better than the previous year, a liquidity problem in the country's banking sector might be intensified by rising import costs, loan demand, foreign price hikes, and a return to normal economic operations. The hardships of regular people in the country have become insurmountable as a result of the country's spiraling inflation. Policies focused at lower-income and affected individuals will be crucial in maintaining the economic recovery and further reducing poverty. None of these problems, however, are unsolvable.

On the flip side, as I write this report, the world witnesses the onset of a worldwide economic crisis as a result of the Russian invasion on Ukraine, which is dubbed a disaster for the world by the World Bank and is expected to cut the global economic growth, especially in such dire times as the economy hit rock bottom due to the pandemic. Given Russia and Ukraine are the world's largest wheat producers, accounting for about 60% of worldwide production, there is a probability that the world will face a food crisis, with prices hitting the roof and global inflation spiraling. The rapid spike in the pricing of commodities ranging from oil and metals to wheat is projected to raise the cost of many common items ranging from food to gasoline and heating. Given the recent events, there is a high possibility that the economic repercussions will be felt by people all over the world, including Bangladesh, as there is a leeway of disruption in the global supply chain, causing global trade to become even more steep.

Alongside, there are probabilities of substantial ramifications for the Rooppur nuclear power plant project, which is by far the largest project with Russian credit in Bangladesh, notwithstanding the plights of the people caused by the rise in oil and wheat prices, the majority of which comes from both warring countries. Concurrently, there is a possibility that LankaBangla will face constraints in its incremental and existing loans, as a result of intensifying inflation, and the possibility of a potential decrease in its disbursement, cutting back the headway we made during the pandemic in 2021, as well as the possibility of a dry market due to a reduction in government expenditure.

LBFL's strategies for changing economic scenario
After being hit by the pandemic in 2020, one of the lessons learned was that there is no other option than to roll out on a hub and spokes model. We are aiming to penetrate the market with wider geographic reach, and we would like to emphasis on the SME business. There are constant efforts in transforming the company digitally and provide quality customer care via digital channels. With an aspiration to turn into a FinTech company in the foreseeable future, SME Application Automation, EkPay Bill Payments, and promoting Prantik (a digital product featuring loan, DPS, and credit card facilities) are among of the current and future projects. One of our key focus gathered from here can be said to have an SME-led asset growth, alongside retailled asset growth.

A stringent monitoring and collection process from the business division would be conducted in order to reduce NPLs to acceptable levels, hence enhancing asset quality, which has seen a slight dip due to the Bangladesh Bank's loan provisioning policy. We at LBFL aim to review and redesign the organizational structure here, by strengthening our human resources via job rotation, eliminating non value added position and creating new value added position. In order to ensure efficiency and productivity, we also hope to roll out on HAY methodology for job evaluation.

As we ponder over our future plans as an organization, we are currently hit by another variant of COVID-19, Omicron; and as a nation we are constantly trying to stay afloat as we absorb through the shocks we receive as the days pass. In this situation, one of our focal point is to continue the management of liquidity. We wish to focus on long term funding with reasonable rate, followed by maintaining buffer fund for few months to ensure liquidity needs. Since we saw a trend in the capital market and successfully optimized the bullish capital market, bringing in about a large part of the income this year, we will keep our liquidity need in check by ensuring maximum return taking minimum risk, and moderate level investments in government securities.

Appreciation

The synergy of unwavering support from all of our stakeholders propels us down the path of long-term growth, increasing our confidence in attaining long-term sustainability and greater yields. I appreciate the contributions of the Board of Directors, members of the Management Committee, and all members of our staff. Lastly, none of this would have been possible without the continued support of our investors, loyal customers, and other stakeholders in the LankaBangla brand. We are motivated to keep our journey toward mutual growth and achievement, and we are hopeful that we will be able to work together to weather any storm in the foreseeable future.

Thank you!
Khwaja Shahriar
Managing Director & CEO