Profits of banks, NBFIs may increase due to cut in corporate tax rate

Stakeholders in the banking, insurance and financial institutions (FIs) sectors have expressed satisfaction over the budget proposal to cut the corporate tax rates.

They expected that the tax-cut measure in the budget proposed for the fiscal year 2018-19 would help increase the profitability of the companies.

It would also allow the banks and the non-bank financial institutions (NBFIs) to offer loans to their clients at lower rates, not in all cases though.

The impact will, however, depend on some other factors like the trend of capital market and, the amount and status of loans disbursed by the FIs, they said while talking to the FE on Saturday.

They further viewed that more insurance companies would be encouraged to go public due to the difference in corporate tax between the publicly and non-publicly traded companies.

Earlier on Thursday last, Mutual Trust Bank Managing Director Anis A. Khan in an instant reaction on the budget appreciated the tax-cut proposal, saying that it would leave a good impact on the banks' profitability.

On Thursday last, the budget proposed to cut the corporate tax rates by 2.50 per cent for publicly and non-publicly traded banks, insurance companies and financial institutions (FIs) for the FY 2018-19.

The banks, insurance and financial institutions approved in 2013 will also be entitled to the tax cut facility at a rate of 2.50 per cent.

Arif Khan, managing director at IDLC Finance, said the profits of the FIs would depend on, among other things, the management and the trend of capital market.

"The profit margins of the FIs are little due to the declining trend of the capital market."

He said the companies would have a scope to increase the amount of dividend disbursement as a portion of the profits would be saved following the tax cut.

Arif Khan also said the FIs would have a scope to reduce the interest rate for the borrowers.

"The companies having less amount of bad loans and good management can reduce the interest rate," Arif Khan added.

There are 23 financial institutions listed with the stock exchanges of the country.

Most of the companies recommended dividends ranging from 5.0 per cent to 30.30 per cent for the year ended on December 31, 2017.

Only four companies incurred losses ranging from Tk 1.68 to Tk 9.34 per share for the year ended on December 31, 2017.

Asad Khan, head of research at Prime Finance & Investment, said the corporate tax is applicable only when a company makes profit.

"But there is no impact of tax cut on the companies which are facing acute problems in running business," he said.

A few of the NBFIs are in a position to incur profits, he said, but more than 50 per cent are not being able to conduct businesses as they are not getting deposits.

"Once, the profit margin of NBFIs was ranging from 4.0 per cent to 6.0 per cent. But now the companies' profit margins are getting squeezed day by day," said Asad Khan.

He, however, said the NBFIs will enjoy benefit of tax cut if the government continues the opportunity till the FY 2019-20.

Ahsanul Islam, a former president of Dhaka Stock Exchange (DSE), said the profits of insurance companies will increase a little bit following the corporate tax cut.

"The amount which will be saved following the rate cut can be disbursed as dividend," said Islam, also the managing director of Sandhani Life Insurance.

He said the main thing is that a 'difference' is created and more companies will be encouraged to go public.

There are 47 insurance companies listed with both the stock exchanges.

The budget proposed to reduce the corporate tax rate to 37.50 per cent from existing 40 per cent for publicly traded banks, insurance companies and financial institutions.

The rate for banks, insurance companies, and financial institutions those approved by government in 2013 will also be 37.5 per cent instead of existing 40 per cent.

The minister also proposed 40 per cent corporate tax for non-publicly traded banks, insurance companies and financial institutions, reducing from the existing rate of 42.50 per cent.

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