Premier Leasing's NPL soars to 72.5pc amid growing losses

The audit firm of Premier Leasing & Finance Limited have raised serious concerns about the company's ability to continue operations, as its key financial indicators have been in the negative over the past four consecutive years.

The negative financial indicators of the non-bank financial institution (NBFI) have made its income-generating capability "questionable", which could further erode shareholder confidence, said its auditor in a qualified opinion issued this week.

The company has reported a cumulative loss of Tk 8.71 billion over the four years to 2023, according to data available on the Dhaka Stock Exchange.

Premier Leasing has been grappling with a high volume of classified loans, a negative capital adequacy ratio, excessive liabilities, and swelling losses, the auditor said, casting significant doubt on its survival.

Several stock market analysts said irregularities and mismanagement in loan disbursement are key factors behind the company's losses in recent years.

The company's classified loans totalled Tk 9.48 billion at the end of 2023, accounting for 72.5 per cent of its outstanding loans amounting to Tk 13 billion.

What is more, the company's capital adequacy ratio plunged to a negative 41.14 per cent in 2023, which indicates the entity's heavy reliance 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 financial report, Premier Leasing has failed to maintain the required provisions due to a high volume of classified loans.

It maintained a provision of Tk 5.06 billion against loans and advances, falling short of the Tk 6.62 billion mandated by the Bangladesh Bank.

Similarly, with regard to other assets and fixed deposit receipts (FDR), the company did not recognise any provision, resulting in a shortfall in provision of Tk 1.04 billion and 1.90 billion respectively.

In September 2022, the central bank issued a letter asking the company to make up these deficits by 2029.

Accordingly, the company set aside Tk 750 million for the year 2023 to cut down provision shortfall. In addition, they also maintained a provision of Tk 1.65 billion.

Premier Leasing holds Fixed Deposit Receipts (FDRs) totalling Tk 1.85 billion in four scam-hit financial institutions -- Bangladesh Industrial Finance Company (BIFC), FAS Finance & Investment, International Leasing, and People's Leasing. These FDRs account for 10.41 per cent of the company's total assets.

The company has not made any provisions for these FDRs, and there is growing uncertainty regarding the recovery of the principal amounts, let alone any potential interest income.

Premier Leasing 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.

On the other hand, Premier Leasing took term deposit receipts (TDRs) from FAS Finance, International Leasing, and People's Leasing, amounting to Tk 1.54 billion.

The company reported negative earnings per share (EPS) of Tk 28.55 and negative net asset value (NAV) of Tk 46.79 for 2023.

The company suffered a net loss of Tk 3.80 billion in 20203. However, the net provision of Tk 2.40 billion that has been charged in the statement of profit or loss and other comprehensive income is understated.

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

At this juncture, having a negative EPS for four consecutive years makes the entity's income-generating capability questionable, which could lead to a loss of shareholder's confidence further, it said.

The company also could not declare any dividend for its shareholders for the last five consecutive years. It last paid a 5 per cent stock dividend for 2018.

The stock traded at far below the face value and closed at Tk 3.30 on Thursday. That dragged down its market cap to Tk 438.8 million, wiping out 67 per cent of its paid-up capital.

Premier Leasing continued to suffer losses, having reported a loss of Tk 880 million for the January-September period this year, which was 14 per cent higher than the loss reported for the same period last year.

Company secretary of Premier Leasing Subash Chandra Moulick could not be reached for comments despite repeated attempts.

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