Dear Shareholders
Good Morning,
I would like to express my sincere thanks and gratitude to you all for your support & co-operations reposed on us and welcome you all in the 21st Annual general Meeting of the company, on behalf of the Board of Directors.
I, on behalf of the Board of Directors, presenting the Directors’ Report on the operational and financial activities of People’s Leasing And Financial Services limited (PLFS) together with the Audited Financial Statements for the year ended 31 December 2016 which also includes reports on business and strategy review, risk management, corporate governance, financial and operational highlights for your valued consideration, approval and adoption. This report has been prepared in compliance with Section 184 of the Companies Act 1994, Financial Institutions Act 1993 and the guidelines issued by Bangladesh Securities and Exchange Commission (BSEC), Bangladesh Bank and other regulatory authorities.
In spite of low credit appetite in the market and weak performance of banks and NBFIs, PLFS has demonstrated better performance in all major Key Performance Indicators. It’s credit portfolio size also matched comparing to the deposits. Classified loan ratio reduced to a reasonable range at the end of December 2016. The results reflect our promise to deliver sustainable growth in our balance sheet and growing returns to our shareholders.
Even as your company continues to grow rapidly, the Board remains extremely focused on ensuring that we have effective corporate governance, risk management and internal control systems in place and which are so essential for the long-term sustainability of the business.
Global Economic Outlook
The world has not recovered fully yet from the global financial crisis. The global economic growth is estimated to have slowed in 2016 to a post-crisis low of 2.3%; however, a moderate recovery is expected in 2017 with the GDP forecast to increase to 2.7%, which is mainly driven by the growth in emerging and developing economies.
Despite the fact that the world is on the edge of economic recovery, the prospect of 2017 and beyond is against under serious cloud following some geo-political events in 2016 such as Britain’s vote to leave European Union (Brexit), appointment of a new US president, OPEC’s decision to cut crude oil production, leakage of Panama Papers and the fact that Central Banks of advanced economies have reached their limits of expansionary monetary policy measures that could restrict them from taking further stimulus measures. These events could dampen cross-border capital flows and world’s trade volume, put inflationary pressure and spur instability in financial markets, exchange rates and commodity prices.
Bangladesh Economy
The resilience of Bangladesh economy has been persistently tested over time. The economy is moving forward despite global macroeconomic volatility, energy shortage and structural constraints. GDP has been growing at more than 6.0% per annum over the five years. The economy posted 7.1% GDP growth in fiscal year 2015-2016, which exceeded expectations, aided by a revival in exports and sustained domestic consumption. Inflation was lower than projected, whilst higher exports and modest imports kept the current account in a larger surplus. However, with the falling trend in inward remittances, Balance of payment faced some pressure at the end of the year. Inflation rate has progressively turned down to 5.03% in December 2016. Cut in domestic oil prices by state-owned organization Bangladesh Petroleum Corporation in response to favourable oil prices in the world market, low international commodity prices and a good rice harvest have reflected in a lower rate of inflation.
Foreign exchange rate (BDT to USD) remained stable through-out the year and foreign exchange reserves hit an all-time record high at USD 32 billion in December 2016. Exports grew by 9.7% and import stayed flat in FY 2015-2016. Trend of foreign direct investment has shown signs of recovery in the second half of 2016.
Capital market remained steady during the year 2016 with stock market index hardly gaining any points and turnover yet to pick up. In addition, the number of listed companies has not increased as of September 2016 over December 2015.
Financial sector
Sluggish performance of real estate sector and low appetite for private sector investment have resulted in low demand for credit. The gap between demand and supply has caused excess liquidity in the market. As a result, interest rates on both loans and deposits continued to fall and loans and advances posted a modest growth. Industry wide asset quality has deteriorated further as reflected in higher non-performing loan ratio. In addition, gradual implementation of BASEL III has reduced banks’ lending capacity. With low balance sheet growth, reduced spread and falling asset quality, Banks and NBFIs are facing difficult times to achieve profitability targets. In an attempt to curtail deterioration of asset quality, the Central Bank has strengthened its vigilance and supervision over the industry.
Overall performance of the industry is largely held back by the weaker lending performance, operational inefficiencies and poor asset quality of state-owned banks. In addition, few unexpected events in the banking sector have created some disturbances in the overall discipline of the industry.
Call money borrowing rates remained stable with the year average of 3.67%. Average interest rate on loans and advances has fallen to 10.45% in 2016 from 11.68% in 2015 and similarly interest rate on deposit has gone down to 5.65% in 2016 from 6.83% in 2015. Because of the parallel shift in interest rates, spread stayed flat at 4.80% in 2016 vis-à-vis 4.85% in 2015.
In NBFI sector, average interest rate on loans and advances has fallen to 13.10% in 2016 from 14.89% in 2015 and similarly interest rate on deposit have fallen to 9.03% in 2016 from 10.56% in 2015. Average cost of fund has moved down to 7.95% in 2016 comparing to from 8.98% of previous year. Classified loan ratio stood at 9.0% as of June 2016.
PLFS's Performance in 2016
After starting business in 1996, PLFS reached in a landmark within 20 years of successful operation in Bangladesh, PLFS has diversified its business and emerged as one of the biggest multi-product non-banking financial institutions (NBFIs) of the country with a balanced focus on the Corporate, Retail and SME sectors, while being engaged in providing a diverse bouquet of capital market services through its associated company PLFS Investment Ltd.
Business Review
Total Business: In the year ended on December 31, 2016, the total exposure of the Balance Sheet stood at BDT 29,250.00 million as compared to BDT 29,017.44 million (restated) as at December 31, 2015.
Credit: As at the close of the year total credits of PLFSL stood at BDT 10,013.62 million as against BDT 15,148 million as at December 31, 2015.
Investment in Shares: Investment in shares were BDT 1,346.41 million at the end of 2016 comparing to BDT 2,120 million as on December 31, 2015.
Deposits: Deposits stood at BDT 16,258.76 million as on 31.12.2015 opposite to BDT 16,009.19 million as on 31.12.2016.
Borrowings: Borrowing increased to BDT 6,267.01 million on 31.12.16 from BDT 6046.41 million on 31.12.15.
Capital & Shareholders' Equity: Capital & Shareholders' equity stood at BDT 3,209.22 million as on December 31, 2016 as compared to BDT 3,706.10 million as on December 31, 2015.
Operating results: Comparative figures of income, operating expenses, loan & lease provisions & net profit are given below:
|
Particulars |
2016 |
2015 |
2014 |
||
|
Consolidated |
Solo |
Consolidated |
Solo |
||
|
Net Interest Income |
(289) |
(286) |
(955) |
(948) |
404 |
|
Income from Investment |
59 |
41 |
124 |
151 |
241 |
|
Other Operative Income |
111 |
76 |
557 |
528 |
88 |
|
Operating Expenses |
187 |
175 |
555 |
545 |
189 |
|
Loan & Lease Provisions |
185 |
153 |
20 |
Nil |
327 |
|
Net Profit Before Tax |
(491) |
(497) |
(849) |
(814) |
217 |
|
Net Profit After Tax |
(494) |
(497) |
(880) |
(840) |
197 |
SME Finance
As per guidelines and instructions of Bangladesh Bank the company has undertaken SME financing task very earnestly. During the year the company financed BDT 10.5 million as against target of BDT 50.00 million. The company has already opened a help desk named "Women Entrepreneurship Desk" and a dedicated team is working to boost up SME loans and loans to women entrepreneurs.
Money Market Operation
The money market remained over all liquid due to surplus of money in the hands of Commercial Banks, lower credit disbursements and high foreign exchange reserve due to rising export and remittance and declining import. BB in its last monetary policy gave indication of lower domestic rates ahead. During the year under report the company received Call Loan of BDT 134,950 million from different banks and FIs and refunded BDT 134,230 million to the lenders.
Banking arrangements
In 2016 the company obtained BDT 50.00 million from banks as term loans to finance its operations and re-paid BDT 1281.56 million as per terms and conditions of contracts. The weighted average rate of borrowing was 12%.
Going Concern
Year ending financial statements of the company has been prepared on a going concern basis, which contemplates the realization of assets & satisfaction of the liabilities in the normal course of business. The Board of Directors has made annual assessment about whether there exists any material uncertainty which may cast significant doubt upon the company’s ability to continue as a going concern, including review of budget & future outcome of inherent uncertainties in existence. Based on the different indications it is appropriate to adopt going concern assumptions and no material uncertainty exists in preparing the financial statements.
Deposit Mobilization
PLFS mobilizes term deposits from corporate and individuals through its wide range of deposits schemes with different maturity options, monthly/quarterly/half yearly/yearly income options, double/triple money options, monthly saving options etc. The Board gave a policy decision to mobilize private deposits in order to minimize dependency on term loan and term deposits from banks and accordingly a cell is being run through a set of contractual staffs to tie together deposits from the market. The staffs so recruited have shown sparkling performance in mobilizing term deposits from the marketplace.
Human Resources
Our company determinedly reviews existing human resource policies and implements effective management policies and practices to enrich the quality of its employees. We provide training to our employees through opportunities offered by Bangladesh Bank, DSE, CSE, BLFCA, IBA and other external training program organizers to enhance their professional knowledge and skills. We also provide them good and congenial working atmosphere. We believe in the policy of a satisfied worker is the greatest asset for a company and accordingly we are offering the facilities of encashment of Earned Leave, Leave Fair Assistance, Maternity Leave of 6(six) months with pay, Performance Bonus, Target Bonus other than Festival Bonus to our employees.
Staff Strength
Staff strength of the company as on December 31, 2016 was as under:
Permanent Management Staff & Executive Officer: 107 nos.
Contractual Management Staff, Executive Officers: 148 nos.
Support Services: 20 nos.
PLFS is an equal opportunity employer. Company's policy is to ensure equal opportunity for all in selection, recruitment, development, training, promotion and rewards. PLFS always practices equal treatment to all employees irrespective of their age, race, religion, sect and gender. PLFS has adopted the policy circulated by Govt. on 'National Integrity Strategy' and we are pursuing to implement the concepts and fundamentals as laid down in the policy in its fullest meaning.
Anti-Money Laundering
Anti-money laundering law reflects the effort made by the government to stop money laundering methods that involve financial institutions. Under the guidelines set forth by Anti-Money Laundering, or "AML" financial institutions are required to verify large sums of money passing through the institution, and they are required to report suspicious transactions. To prevent money laundering, the management of PLFSL has formed Anti-money laundering committee and which is performing its duty as per regulatory guidelines.
Risk Management
Risks of any financial institution are defined as the possibility of losses financial or otherwise. The risk management of the company covers 05 core risks i.e. Credit Risk, Asset-Liability Management Risk (Balance Sheet Risk), Money Laundering and Terrorist Financing Risk, Information Technology Risk and Internal Control & Compliance Risk. Moreover Operational Risk, Market Risk, Liquidity Risk, Reputational Risk and Sustainability Risk etc. are also taken into consideration. The company strictly follows the guidelines of Bangladesh Bank and requirement of other regulatory bodies in all respects. A separate Risk Analysis Unit (RAU) and Risk Management Forum (RMF) are in place. In addition to those PLFS has different committees namely, MANCOM, ALCO, Credit Committee, Recovery Review Committee etc. PLFS have a separate and independent Internal Control and Compliance Department under supervision of an Assistant General Manager. The company has also adopted the principles of Green Banking Activities as a part of its compliance.
Corporate Social Responsibility (CSR)
Our company is very much cautious on compliance of Corporate Social Responsibility (CSR) as it means in communication and strength of mind. We provide congenial environment to our employees and also cares for rendering high standard of services to our clients, encourage investments in environment friendly projects.
With a view to promote CSR activities our company was involved in the following social programs:
# The Company paid stipends for H.S.C passed students to mitigate education expenses during the year. The program will continue depending on performance of the students based on their results of 2016.
# Distributed 500 blankets to the poor people of different districts who were caught in unprecedented coldness during the winter in 2015.
# Contributed to National Day Supplements, Sports and Cultural Activities through profuse advertisements in the Souvenirs published for the purpose.
Information Technology
In the world of globalization, Information system is such where data are collected, classified and put into process interpreting the result thereon in order to provide an integrated series of information for further communicating and analyzing. PLFS is driving to upgrade its IT platform regularly and making required investment to bring about changes in technological infrastructures to bring efficiency to its operation and have more satisfied customers. As you may be aware the Company is procuring state-of-the-art & robust core operating systems to combine and integrate all the operations of the Company and to have efficient use of the information.
The Pattern of Shareholdings
The Authorized Capital of People’s Leasing & Financial Services Limited is Tk. 5,000,000,000 divided into 500,000,000 ordinary shares of Tk. 10 each. The paid-up Capital of the Company is Tk. 2,854,405,970 divided into 285,440,597 nos. ordinary shares of Tk. 10 each. The shareholding pattern of the Company as at December 31, 2016 is shown in this Annual Report as per clause 1.5 (xxi) of the BSEC Notification No. SEC/CMRRCD/2006-158/134/Admin/44 dated August 07, 2012.
Board Meeting & Attendance of Directors
During the year ended on December 31, 2016 a total number of 11(Eleven) Board Meetings were held and attendance of Directors and their remuneration paid during the year are given in Directors Report in this Annual Report as per clause l.5 (xx) of the BSEC Notification No. SEC/CMRRCD/2006-158/134/ Admin/44 dated August 07, 2012.
Corporate and Financial Reporting Framework
The Members of the Board, in accordance with the Bangladesh Securities & Exchange Commission's Notification no SEC/CMRRCD/2006-158/Admin/44 dated August 7, 2012; confirm compliance with the financial reporting framework for the following:
a. The Financial Statements prepared by the Management of PLFS, presents fairly its state of affairs the result of its operations, cash flows and changes in equity.
b. Proper books of account of the issuer company have been maintained.
c. Appropriate accounting policies have been consistently applied in preparation of the financial statements and that the accounting estimates are based on reasonable and prudent judgment.
d. International Accounting Standards (IASs)/ Bangladesh Accounting Standards (BASs)/ International Financial Reporting Standards (IFRSs)/Bangladesh Financial Reporting Standards ,BFRSs), as applicable in Bangladesh, have been followed in preparation of the financial statements and any departure there from has been adequately disclosed.
e. The system of internal control is sound in design and has been effectively implemented and monitored.
f. There are no significant doubts upon the issuer company's ability to continue as a going concern.
Appointment of External Auditor
The Financial Institutions Act, 1993 stipulated that an auditor of a Financial Institution cannot be appointed for more than 3(three) consecutive years. M/S Rahman Mostafa Alam & Co., Chartered Accountants carried out the audit of the Company for the first year in 2015 and 2016 as the second year. Considering the eligibility & willingness and proposal, the Board of Directors recommended for appointment of M/S Rahman Mostafa Alam & Co., Chartered Accountants -an audit firm, registered office at 65/2/1 Box Culvert Road, Puran Paltan, Dhaka -to be the Auditor for the year 2017 to hold office from the conclusion of the 21st Annual General Meeting until the next Annual General Meeting of People’s Leasing & Financial Services Limited. As per Section 210(10) of the Companies Act, 1994, remuneration of the Auditors' required to be approved by the Shareholders in the Annual General Meeting of the Company.
Mentionable that, as per approval of the Shareholders in the 20th Annual General Meeting held in September 22, 2016 the auditors' remuneration for Audit services for the financial year 2016 was approved for an amount of Tk. 300,000/- excluding VAT. Accordingly the auditor has completed the audit of year 2016 and submitted the audit report & Audited financial statements in due course of time.
Similarly, as per offer of M/s Rahman Mostafa Alam & Co. Chartered Accountants, Audit Committee of PLFS proposed the name of M/s Rahman Mostaf Alam & Co. and the Board of Directors in its 317th meeting held on July 11, 2017 also recommended to appoint M/s Rahman Mostafa Alam & Co., Chartered Accountants for auditing the financial statements of PLFS for the period ending on December 31, 2017 at a remuneration of Tk.350,000/- (three lac fifty thousand ) only excluding VAT.
Corporate Governance Compliance Report
In accordance with the Bangladesh Securities & Exchange Commission's Notification no. BSEC/CMRRCD/2006-1581 admin/134/44 dated August 7, 2012, the Directors are required to confirm compliance of certain conditions. The notification was issued for ensuring good governance practices in the listed companies. A statement on the compliance of the BSEC's conditions is given in this report in Annexure –X
Certification on compliance of Corporate Governance
Certificate from professional accountant on compliance with the conditions as per clause 7(i) of Corporate Governance guidelines is shown in Annexure –IX
Dividend
Considering the present condition and financial strength of the company, the Board of Directors has recommended NO DIVIDEND for the year ended December 31, 2016, subject to the approval of the shareholders in the 21st AGM. With this No dividend, the paid-up Capital of the company would remain same i.e. BDT 2,854.4 million. We are feeling discomfort for not declaring any dividend this year to the shareholders. However we are giving our sincere efforts to improve the financial conditions of the company.
Appointment of new Managing Director
Mr Sami Huda has been appointed as `Managing Director & CEO’ of the company on June 29, 2017. Earlier, he joined in PLFS as `Deputy Managing Director’ on 11 April 2016. Later, he was serving as Managing Director (Current Charges) of PLFS since January 01, 2017 after expiry of tenure of Ex-Managing Director Dr MA Yousuf Khan. Prior to his joining in PLFS, Mr Sami Huda served as- Head of Corporate, IT & Corporate Recovery of Industrial & Infrastructure Development Finance Company Limited (IIDFC) since September 2005. Mr Sami Huda has long 16 years hands on experience in the Financial sector of the country.
Director’s retirement & re-election
In accordance with section 128 of the Article of Association of the company, the following Directors shall retire in the 21st Annual General Meeting and being eligible offered themselves for re-election:
Expectations in year 2017
The GDP growth forecast for 2017 is expected to be 6.9%, according to Asian Development Bank. Inflation is expected to stay below 6% with the anticipation of lower domestic oil price, good domestic agricultural harvest and low international commodity price.
Sustained macroeconomic stability, low rate of inflation, rising reserves and declining interest rates will play an important role in stabilizing the economy. However, lack of efficiency in government expenditures will continue to be a concern. Structural reforms, energy boost-ups, infrastructure development and efficiency in government expenditures are required for a sustained growth.
In the face of sound macroeconomic environment and stable political outlook, private sector investment is expected to speed up in 2017. Private sector investment is expected to be well backed by strong domestic consumption and higher export volume. Therefore, the economy is expected to remain buoyant in 2017.
PLFS expects to build on the progress made in 2016. It expanded distribution coverage to come closer to mass population and envisage to establish itself as a strong financial brand in the country.
In order to diversify and grow its credit portfolio, PLFS will aggressively drive affordable home loans and SME loans across the country. PLFS has made some remarkable tie-ups with key strategic partners to leverage distribution channel and gain operating and business synergies. It has revamped its product ranges to reach target customers. The recruitment of human resources and ongoing training programs in both business and support functions will continue to make sure that business growth is matched with right organizational capabilities. In order to ensure sustainable growth in Balance Sheet, PLFS will give focus on securing long term fund from retail deposit and going for floatation of long-term debt instruments.
In addition, we will continue to maintain sufficient capital reserve beyond regulatory requirement, which will allow the company to grow and absorb expected loss in future. While growing, we will continue to take prudent approach in assessing and approving credit and monitoring portfolio. We will heavily invest in focused sectors of the country to grab growing volume of business and bring operational efficiency, deliver extraordinary customer experience and improve management information system. PLFS will continue to patronize CSR initiatives through sponsorships, donations or any other support within its capacity. We promises to stay supple, watchful and approachable to the changes in Macro-economic and regulatory atmosphere.
Our patron remains at the central point of whatever we do and creating value for customer is critical to long term success of our business. We understand this by our heart and soul. Therefore, we are committed to give best-in-class experience to our valued customers. We pledge to comply with all applicable laws and regulations, increase transparency and public disclosure and conduct our business in ethical manner. This is deeply rooted in our employee values. In our journey we try to engage our shareholders, regulators, customers, employees and other stakeholders to create a sustainable business model. We ensure that good internal control and governance is embedded in our business, system, process and culture.
Underpinning this strategy is our unique culture and corporate values and, most especially, the quality of our people. We are proud to have one of the most vibrant working environments with passionate employees who work together to attain a common goal: help our customers to fulfill their dreams. Our business strategy, strong culture of compliance and the unyielding commitment and dedication of the team management will translate into exceptional results in year 2017, we hope.
Acknowledgements
The Board of Directors would take this opportunity to expresses their gratitude and extend appreciation to our valued shareholders, clients, bankers, depositors, lenders, business partners and other stakeholders for their continued support and co-operation. The Board offers thanks to Bangladesh Bank, Bangladesh Securities and Exchange Commission, Dhaka Stock Exchange, Chittagong Stock Exchange, Registrar of Joint Stock Companies and Firms, the National Board of Revenue, the Ministry of Industries, the Ministry of Finance and other Government Agencies for their collaboration. I would also like to thank my colleagues on Board, who have extended their all sorts of cooperation, to meet all the adverse internal and external conditions, and made the year 2016 another year of success for the Company.
Last but not least, the Board has a special note of thanks for our customers, employees, shareholders and management for their marvelous dedication and incredible durable occupation for giving us the opportunity to hand out their needs; and our shareholders for their continual confidence in the intense opportunity of your Company.
For and on behalf of the Board of Directors-
Uzzal Kumar Nandi FCA
Chairman, Board of Directors
August 20, 2017
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