Premier Leasing & Finance in a tight spot, with swelling losses, liabilities

Premier Leasing & Finance's negative earnings per share for three consecutive years to 2022 has made its ability to generate income "questionable", said its auditor in a stock filing on Monday.

The cumulative loss of the third-generation financial institution stood at 4.91 billion for the period, as per the data available on the Dhaka Stock Exchange.

Premier Leasing has been trapped into a high volume of classified loans, negative capital adequacy ratio, excess liabilities, and swelling losses, which, according to the auditor, would be difficult to get out of.

Several stock market analysts said the company's profits had plummeted for the past few years due to irregularities and mismanagement in debt disbursement.

Its classified loans culminated to Tk 7.83 billion at the end of 2022, which was 61 per cent of its outstanding loans, lease and advances.

The capital adequacy ratio was 18.29 per cent in the negative in 2022, which indicates the entity's heavy dependence on liquid assets from external sources, the auditor said.

A negative capital adequacy ratio implies that the company is exposed to higher insolvency risk and may not have sufficient capital to overcome losses. That in turn raises doubts about the company's ability to continue its operation, reads the auditor's note.

As per the latest data, the finance company has lost its capacity to maintain required provision, the auditor opined.

It maintained a provision of Tk 2.67 billion against loans and advances while it was required to keep a provision of Tk 4.97 billion as per the Bangladesh Bank.

Similarly, with regard to other assets and fixed deposit receipts (FDR) the company did not recognize any provision, which represents a shortfall in provision of Tk 1.11 billion and 1.83 billion respectively.

The central bank issued a letter in September last year, asking the company to make up the provision deficits in the eight years to 2029.

Accordingly, the company set aside Tk 750 million to cut down capital shortfall while Tk 325 million to slash its provision shortage in 2022.

Premier Leasing has FDRs in four scam-hit financial institutions -- Bangladesh Industrial Finance Company (BIFC), FAS Finance & Investment, International Leasing, and People's Leasing - of Tk 1.78 billion in total, which is equivalent to 10.08 per cent of the company's total assets.

The company has no provision kept against the above FDRs and there is uncertainty about recovery of the principal amounts from those financial institutions, let alone interest income from the investments.

On the other hand, Premier Leasing took term deposit receipts (TDR) from FAS Finance, International Leasing, and People's Leasing, amounting to Tk 1.48 billion.

Premier Leasing & Finance has so far recovered only Tk 1.50 million from BIFC.

All the bad investments exposed the company to "considerable financial risk", said the auditor.

The company reported a loss of Tk 15.97 per share for 2022 while the net asset value eroded to become negative at Tk 21.65.

"This is alarming, as the negative earnings per share and net asset value would deteriorate further, sending adverse signals to the shareholders about the company's current financial health and future financial stability," the auditor said.

The company could not declare any dividend for shareholders for the last four consecutive years.

The stock traded at far below the face value and has been stuck at Tk 6.80 since September last year. That dragged down the market cap to Tk 904 million, wiping out 32 per cent of the paid-up capital.

Premier Leasing continued to remain in the red this year, having reported a loss of Tk 561 million in the January-June period. However, the loss was over 21 per cent less than what was reported for the same period last year.

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