DBH Finance's Q3 profit edges down due to higher expenses, provisioning

DBH Finance has reported nearly a 3 per cent year-on-year decline in profit to Tk 324 million for the third quarter (Q3) through September, mainly due to higher provisioning amid a spike in interest expenses on deposits and borrowings.

The leading non-bank financial institution (NBFI), which focuses exclusively on home loans, had earned a record quarterly profit of Tk 333 million in the same period a year earlier.

The company secured handsome income from investments in government securities alongside high interest income from home loans. However, the rise in interest payments on deposits eroded bottom-line growth, according to the financial statements published by the NBFI.

While interest income grew 9 per cent year-on-year in the quarter through September, interest payments to depositors and lenders soared 17 per cent. Consequently, its net interest income slumped 22 per cent year-on-year to Tk 292 million in July-September this year.

DBH Finance's average interest spread narrowed to 2.24 per cent in the third quarter this year from 2.32 per cent in the same quarter last year, indicating that the company's interest income opportunity was squeezed during the period.

The company managed to offset some of the higher interest expenses through gains from government securities, but that was not sufficient to secure profit growth in an adverse business climate driven by inflationary pressure.

Income from investments, particularly government securities, escalated 53 per cent year-on-year to Tk 345 million in the quarter to September, as the company invested heavily in Treasury bills and bonds during the high interest rate regime.

Income from brokerage commissions remained almost static.

Meanwhile, provisioning for home loans surged 145 per cent year-on-year to Tk 59 million in the July-September quarter this year, as non-performing loans (NPL) rose from 0.86 per cent in December last year to 1 per cent at the end of March this year, according to the latest available data.

Despite the surge in NPLs, the company still has the lowest default rate in the industry.

If profits in the first three quarters are taken together, DBH Finance remains on a growth trajectory. Its profit rose to Tk 744 million in January-September this year from Tk 741 million in the same period of the previous year, driven by higher investment income.

Interest income grew 12 per cent year-on-year and interest payments rose 20 per cent year-on-year in January-September, while investment income jumped 48 per cent to Tk 821 million in the nine months to September compared to the same period last year.

The home loan provider has consistently been able to keep operating costs low and mobilise funds at comparatively lower costs due to its strong reputation, which has enabled the company to remain competitive in the market, industry insiders say.

"The management remains optimistic about DBH's continued growth momentum, anticipating healthier profits in coming quarters, riding on efficient fund management," said an official of the company, wishing not to be named.

Net operating cash flow per share - a measure of a company's ability to generate cash from its operations - soared to Tk 17.36 per share in January-September this year, from negative Tk 7.31 in the same period a year ago. The company explained that deposits and loan portfolios experienced strong growth, resulting in a net increase in cash inflow.

DBH's home loan portfolio rose to Tk 45.67 billion as of September this year from Tk 44.50 billion in December last year, while deposits grew 7.86 per cent to Tk 49.38 billion during the period under review.

The company has also introduced Shariah-compliant deposit schemes and housing finance products and services in all of its branches located in major cities across the country, alongside existing operations.

Despite the disclosure of a decline in profit on Monday, the stock of DBH Finance rose 1.4 per cent to Tk 36.4 per share on the Dhaka Stock Exchange.

The company's annual profit in 2024 was up 2.4 per cent year-on-year to Tk 1.0 billion, and it paid a 15 per cent cash dividend and a 2 per cent stock dividend for the year.

babulfexpress@gmail.com