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Islamic Finance & Investment Limited (IFIL) reported a loss for the first time for 2023 of Tk 230.23 million since inception, as borrowers, battered in sluggish business environment, have failed to pay back.
Non-performing loans rose to an all-time high of 9.87 per cent of total loans disbursed by the shariah-based non-bank financial institution (NBFI) in 2022, as per the latest data available.
That drove up provisioning costs, pushing the NBFI into the red.
"Some of our big clients have become defaulters. We are not getting our money back. For that we had to keep a huge provision," said Company secretary Md. Ramzan Hossain.
A loan loss provision is the money set aside as an allowance for uncollected loans and loan payments.
Meanwhile, the central bank in May put in place market-based interest rates for banks, but it is yet to issue a circular enabling NBFIs to determine interest rates based on market demand and availability of liquidity. Therefore, the NBFIs are still having to charge interest at the rate of SMART (six-month moving average rate of Treasury bills) plus 5 per cent.
According to Md. Ashequr Rahman, managing director of Midway Securities, the financial health of banks and other financial institutions has been deteriorating and the root cause is the popular practice of defaulting on loans.
NPLs had already reached a significant level when Covid-19 broke out, though interest rate was unnecessarily low at the time. The government then instructed lenders to push back repayments against loans due to the pandemic. When the pandemic waned, the Russia-Ukraine war began, forcing the government to end the low-interest rate regime to curb inflation. The sudden increase in interest rates then led to a further rise in defaulted loans.
"Our bankruptcy law is very ineffective. We are unable to settle this problem. " said Mr Rahman.
In 2022, the profit of IFIL fell to a mere Tk 42 million from Tk 185 million a year ago, as loan provision jumped to Tk 166 million in 2022 from Tk 70 million in 2021.
In the first nine months of 2023, loan provision surged to Tk 380 million, dragging earnings to Tk 300 million in the negative. At the year end, the net loss stood at Tk 230.23 million.
The yearly figure of loan provisioning has not been published yet.
Meanwhile, the stock of Islamic Finance & Investment rose to Tk 9 per share on Sunday on the Dhaka Stock Exchange, up 8.43 per cent from the earlier trading session.