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Bangladesh Finance has been downgraded to 'Z' category from 'A' category, effective from Monday, as the company failed to declare dividends for two consecutive years to 2024 amid staggering losses.
Stockbrokers and merchant bankers are requested not to provide loan facilities for purchasing shares of the company, according to a stock exchange filing on Sunday.
Following the news, the stock plunged 8 per cent to Tk 9.2 per share on Sunday, becoming the second highest loser on the Dhaka Stock Exchange for the day.
The non-bank financial institution (NBFI) suffered a record loss of Tk 7.93 billion in 2024 for, the company said, substantial provisions kept against stressed loans, leases, and advances in compliance with the directive of the Bangladesh Bank.
Bangladesh Finance endured losses of Tk 1.05 billion for the first time in 2023 and cited the same reasons for the poor performance.
The company's consolidated loss per share ballooned to Tk 41.61 in 2024 from Tk 5.60 in the previous year.
The company has not yet published its full financial results for 2024.
Why did Bangladesh Finance suffer a record loss?
Bangladesh Finance made heavy losses mainly due to allocation of additional interest suspense and provisions against stressed loans, said the company in its earnings note.
If any client fails to pay loan installments for more than three months in a row, their accounts get suspended, and the pending interest is not shown as income.
If interest income against bad loans accrues on paper but are not realized, the amount should be excluded from the profit and loss accounts. When this happens, the amount in the suspense accounts may keep growing.
According to the rules, every lender has to set aside a certain amount of its income, commensurate with non-performing loans. That is called provision.
"We have some very big corporate customers. They are still in trouble and their payment is still not regular," said an official of the company, requesting not to be named.
Hence, the management set aside more than what was necessary as interest suspense and kept higher provision than required, considering that the company may have to bear further financial shock in the future, he added.
Accordingly, the NBFI allocated Tk 7.84 billion as provision and transferred Tk 1.23 billion to its interest suspense account.
Additional provisions were allocated to cover negative equity in margin loans, equity investments, and private placements, demonstrating the company's commitment to prudent risk management practices, said the company.
The measures, according to the company, were aimed at fortifying the balance sheet against future financial uncertainties.
The board of directors has prioritised capital preservation and balance sheet resilience over immediate dividend payouts, while maintaining focus on recovery efforts and the creation of enduring shareholder value, reads a statement issued by the company.
While these necessary provisioning measures have impacted short-term profitability, they were implemented to strengthen the company's financial position and ensure long-term sustainability, said the company.
The company reported a consolidated net asset value per share of Tk 30.05 in the negative, primarily driven by accumulated retained losses that eroded its asset base and resulted in significant net liabilities.
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