Dear Shareholders and Stakeholders

I take the opportunity to extend my heartiest greetings and wishes to all stakeholders on behalf of IIDFC family.

Last year was an eventful year with unique challenges, accomplishments and experiences for IIDFC. The passion and commitment of our dedicated employees enabled us to earn goodwill for all our stakeholders. The year 2018 was also a significant year for IIDFC as the Company was able to attain substantial growth in its portfolio as well as increase its Balance Sheet size despite enormous economic challenges. A Five-Year Business Plan was formulated during the year to attain higher status for the Company and, as such, to create a stronger foothold in the financial sector. The company also put its focus on SME financing to explore new market niche, diversify loan portfolio and minimize inherent risks. This report will confer in detail and guide you through the business strategy, vision, risk management, corporate governance, investor relations as well as sustainability of the Company. On this backdrop, I have the honor and pleasure to present to you the Annual Report for the year ended 31 December 2018.

Although the beginning of the year 2018 presented many challenges for the NBFI sector, IIDFC was able to successfully meet those challenges and, by doing so, was able to attain better performance and higher growth and thus maximize the benefits of the stakeholders.

World Economy

The global growth momentum continued in 2018, largely supported by a strong fiscal expansion in the United States, which in turn has offset slower growth in some other large economies. There were growing signs that global growth might have peaked.

Economic confidence and sentiment indicators in the United States were near historical heights in 2018, reflecting strong job growth, major income and business tax cuts and resilient economic activity. On the other hand, in Japan, although the economy was close to capacity, inflationary pressures remained weak in 2018. For the countries of Central Europe, forward-looking indicators pointed to a slowdown toward the end of the year, as trade tensions between the United States and the EU weighed on the outlook for the region’s automotive industry. In case of China, policy support appeared to have shored up economic activities as well as growth at the outset of the year, with investment growth, especially property investment and retail sales, stabilizing in the same period. Industrial production growth, however, slowed to a multi-year low in the first two months of the year, mostly due to subdued global demand. As for India, economic growth slowed during October to December 2018, on a weaker expansion in private consumption owing to tighter financial conditions as well as pre-election apprehension. Nevertheless, in India, fixed investment increased at a faster rate in that quarter, while export growth accelerated and import growth decelerated.

However, The World Bank’s latest edition of “Global Economic Prospects” (GEP) Report released in January 2019, forecasts world economic growth to moderate form a downwardly revised 3.0 percent in 2018 to 2.90 percent in 2019 and 2.8 percent in 2020-21. According to the report, subtitled “Darkening skies”, the major reasons for the predicated decline in global GDP growth are a softening in international trade and investment, escalating trade tensions, and substantial financial market pressures in some large emerging market and developing economics (EMDEs).

Economy of Bangladesh

Despite challenges, the economy of Bangladesh continued to maintain strong growth in 2018. There were considerable challenges, but the GDP increased due to key growth drivers such as exports and services as well as domestic consumption. Private investment picked up slightly with growing confidence on infrastructure development prospects, strong domestic demand, and stronger global markets. Macro stability challenges included a rise in inflation due to increase in international inflation as well as expansionary macroeconomic policies and persistent external deficit due to continued growth in payments for food, industrial raw materials, capital goods and machinery imports. The economy continued to grow rapidly and achieved a record growth of 7.86% in FY18 (Fiscal Year 2017-2018). The growth momentum was supported by strong domestic and external demand.

As liquidity condition tightened, the central bank reduced Cash Reserve Requirement (CRR) by 100 basis points to 5.50% and repo rates by 75 basis points to 6.00% with effect from April 2018. Moreover, to ease the liquidity conditions, Bangladesh Bank increased available repo tenors to 7, 14 and 28 days. Inflationary risk concerns remained largely under control since broad money (M2) growth for FY18, the key determinant of inflation, moderated to 9.20%, well below the target of 13.30%. Private sector credit growth remained strong at 17.00% in June 2018, slightly above the target of 16.80% in FY18 but it started going down in the second half of the year and reached to 13.30% in December which was far below the target (16.80%).

Foreign exchange reserves stood at USD 32.90 billion in June 2018. Investment maintained its upward trend and reached at 31.20% of GDP in FY18, up from 30.50% in FY17. The ratio of private investment to GDP increased slightly from 23.10% in FY17 to 23.30% in FY18. Similarly, the ratio of public investment to GDP increased to 8.00% from 7.40% over the same period. Gross national savings as percentage of GDP declined to 27.40% in FY18 from 29.60% in FY17. Similarly, domestic savings as a percentage of GDP decreased from 25.30% to 22.80% during the same period. Investment at current market price grew (16.60%) much faster than the gross domestic savings (2.70%). Therefore, the domestic savings-investment gap as percentage of GDP increased to 8.40% in FY18 from 5.20% in FY17.

Performance of the NBFI Sector

The total assets of the non-banking financial institution sector stood at BDT 882 billion in September 2018, an increase of 8.8%, from BDT 810 billion in September 2017. Loans and advances stood at BDT 640 billion, an increase by 7.9% on year-on-year (YoY) basis whereas YoY growth in the corresponding period of the previous year was 16.0%. Similarly, deposits stood at BDT 493 billion, an increase by 10.0% on YoY basis and growth of which in the previous year was 23.7%.  The weaker growth in loans and deposits during the current period was mainly due to the tight liquidity condition which prevailed during the first half of the year 2018. As a result, cost of fund increased to 9.9% in September 2018 from 8.3% in September 2017.  Consequently, spread fell to 2.9% at the end of September 2018 from 3.2% in September 2017. 

Performance Summary

The money market in Bangladesh was volatile throughout 2018. In the first half of the year 2018, the central bank revised the AD Ratio downward for banks which resulted in pressure on the Financial Institutions to collect more deposits. This in turn increased the rate of interest and consequently resulted in fund crisis throughout the sector.

Despite all these challenges, in 2018, the Company achieved a remarkable growth in its core businesses and was also able to make a remarkable growth in its overall portfolio. There was a substantial growth in disbursement of loans and lease in 2018. Total disbursement was BDT 1,059.58 crore in 2018 against BDT 697.68 crore in 2017 registering a growth of 51.88%. The total Loans and Advances of the Company stood at BDT 1,961.47 Crore as on 31 December 2018 as against BDT 1,496.02 crore as on 31 December 2017, registering a growth of 31.11%   in 2018 against that of 7.57% in the previous year. On the back of this growth in 2018, the Company’s total Operating Income was BDT 64.29 crore and the post-tax profit was BDT 15.20 crore in 2018 as against BDT 61.65 crore and BDT 14.39 crore respectively in the corresponding previous year. The Balance Sheet size stood at BDT 2,413.24 Crore on 31 December 2018 as against BDT 2,243.31 crore a year ago, registering a growth of 7.57%.

In conclusion, I would like to express my gratitude to our Honorable Chairman and respected members of the Board of Directors for the guidance and support provided throughout the turbulent year of 2018.  I am grateful to Bangladesh Bank, Bangladesh Securities and Exchange Commission (BSEC) and all our stakeholders for their continuous support, guidance and cooperation. I also like to thank all my colleagues in IIDFC for their cooperation and efforts to achieve the success in the year 2018.  Last but not the least, I would like to acknowledge with high gratitude the support and cooperation extended by our customers - both depositors and borrowers- who selected IIDFC as their trusted financial partner in this highly competitive industry.

Sd/-

(Md. Golam Sarwar Bhuiyan)
Managing Director