10 months ago

DBH Finance to raise money through bonds to expand home loans

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DBH Finance has decided to raise Tk 5.50 billion by issuing bonds to finance affordable housing against the backdrop of a rise in deposit rates.

With the money, it seeks to tap into the demand for home loans among the middle-income group of customers, who have monthly income of Tk 0.10 million, said company secretary Jashim Uddin.

"As deposit rate is increasing, we are issuing fixed rate bonds to avoid fluctuations in the interest rate," he added.

Housing is a basic need and the demand-supply gap has been wide with the cost of properties escalating. Since its inception in 1996, Delta Brac Housing (DBH) Finance Corporation has been focusing on home loans.

DBH Finance disburses home loans worth Tk 1 billion to Tk 1.20 billion every month. Around 90 per cent of the loans are provided from the depositor's money, but depositors' funds are short-term -- for 3 months to one year.

"We can keep depositors money for a maximum of 1 year. But most of the loans have been given for more than 5 years. So, there is a maturity mismatch."

The board has decided to issue bonds with five-year maturity period to offset the mismatch, the company secretary added.

According to a stock exchange filing on Monday, the debt securities to be issued by the largest and specialist housing finance institution in the country would be non-convertible, redeemable and fixed coupon senior bonds. The tenure will be up to five years from the issue date.

A senior bond is borrowed money that has to be repaid first when a company goes out of business, making it a more secure investment than other bonds. However, lower risk comes with lower interest rates.

Banks, financial institutions, insurance companies, corporate bodies, asset management companies, mutual funds, and high net-worth individuals will be able to buy the units at face value in single or multiple tranches. The bond issuance is subject to approval of relevant authorities, including Bangladesh Securities and Exchange Commission (BSEC), according to the filing.

The company said the proceeds of the bonds would facilitate disbursement of loans at affordable costs.

It has set the interest rate of home loans at 10.49 per cent to 12 per cent effective from August 1 this year. The rate may vary depending on the changes in the money market conditions in compliance with the Bangladesh Bank's guidelines, said the company.

The central bank has shifted from the previous interest rate cap regime to a market-based reference lending rate regime where the lending rate for non-bank financial institutions will be determined by adding a 5 per cent margin to the reference rate.

The policy change is expected to widen the interest rate spread and positively impact the interest margin in this sector.

DBH Finance's interest spread was 2.36 per cent in July this year. It is expected to go up in August. The central bank is yet to publish the spread data of August.

Meanwhile, the company's profit dropped more than 10 per cent year-on-year to Tk 490 million in the first half of this year through June as interest income declined due to the lending rate cap.

DBH has always been able to keep the operational cost down and mobilize funds at relatively lower costs due to its excellent market reputation which enabled the company to remain competitive in the market.

The management has been able to contain the non-performing loans (NPLs) below 1 per cent, which helped keep loan-related provisions at a lower level.

While the average NPL ratio of the sector soared to 25 per cent as of March this year, DBH Finance's NPL stood at 0.86 per cent only, according to Bangladesh Bank data.

The success is attributed to selection of good borrowers, proper risk management and rigorous monitoring.

The company has been playing an active role in driving the growth of the real estate sector by helping clients fulfill their dreams of owning a home.

In 2022, it has financed Tk 10.38 billion worth of home loans to over 3,000 households, marginally higher than that of the previous year.

Recently, the company introduced Shariah-based products and services alongside an expansion of existing operations.

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