How IDLC ensures corporate governance and customer trust

Infograph: TBS

Despite the severe liquidity crisis faced by many banks and financial institutions in the country over the last two years mainly due to the dollar shortage, IDLC Finance, a non-bank financial institution, is maintaining its liquid assets significantly above the regulatory requirements to effectively combat the market liquidity crunch.

Officials say this was achieved by implementing effective policies for asset-liability management through robust corporate governance leading to strong customer trust and confidence.

They say IDLC Finance has set a standard in the country over the past four decades, achieving milestones in recouping non-performing loans, ensuring collections, and prudently managing liquidity and capital-to-risk-weighted asset ratio.

IDLC's Head of Treasury, Nurul Karim Patwery, said, "IDLC's liquidity management is very strong, ensuring that we maintain cash and cash equivalents equal to our upcoming debt obligations within the next 30 days. These funds are held in banks or government securities for optimal safety and accessibility.

"As of 31 December 2023, we maintained a liquid asset-to-total liabilities ratio of 22%, even though the regulatory requirement is only 5%."

He said, "We are not facing a liquidity crunch, as our non-performing loan ratio is around 4%. The remaining 96% consists of regular debt, and these customers are repaying their loans on time. So far, not a single customer has experienced a delay of even a single day in receiving their deposits back."

According to the Bangladesh Bank, at the end of 2023, the country's non-bank financial institutions (NBFIs) had defaulted loans totalling Tk23,288 crore, which represents 32% of the total disbursed loans.

The BB report indicates that the total disbursed loans for 35 NBFIs as of December amounted to Tk73,560 crore. The report also reveals that more than a dozen of these NBFIs have defaulted loans exceeding 30%, with some reporting non-performing loans between 50% and 90%. However, only five NBFIs, including IDLC, maintain a non-performing loan ratio of less than 5%.

A review of IDLC's key financial indicators shows that its deposit and other funds expanded by 9% in 2023. As of June 2024, IDLC held the largest asset portfolio among NBFIs, amounting to Tk11,599 crore, with total customer deposits and other funds reaching Tk11,699 crore.

IDLC Chief Financial Officer Masud K Majumder said, "We are one of the top financial institutions in Bangladesh. What accounts for our sustained success? I would attribute it to strong governance and good practices.

"Our corporate culture, built over 40 years, is highly disciplined. Our senior officials have no history of taking unethical advantages, which instills a sense of integrity in lower-level staff as well."

The official stated, "Around 40% of our total loans are SME loans. Over the past 15 years, we have placed significant emphasis on the processes and policies for disbursing credit to the SME sector."

He noted that around 17% of IDLC's SME loans are granted to women entrepreneurs, adding, "Our loan approval process is not solely dependent on top management; about 72% of our loans are approved by managers and lower-level officials.

"We have about 13% women employees. While our female workforce in the field is smaller, women make up around 50% of our internal workforce."

Noting that IDLC's current NPL ratio is 4.71%, the official stated, "Our low default rate is attributed to our practice of directly visiting the field to assess stock lots before releasing loans to customers.

"We verify the customer's address using technology and conduct on-site inspections through our regional managers before approving any loan."

As of 31 December 2023, Bangladesh hosts a total of 35 NBFIs. This includes 3 government-owned entities and 32 private NBFIs. The total number of branches operated by these NBFIs amounts to 308. Among these branches, 56 are state-owned, while the remaining 252 belong to private NBFIs.

The majority of these branches are concentrated in Dhaka and Chattogram. Specifically, Dhaka boasts 173 branches, Chattogram houses 47 branches, and the remaining 108 branches are dispersed throughout the rest of the country.

Digital deposit through bKash

IDLC Treasury Head Nurul Karim Patwery said, "We have adopted a digital deposit platform, which has allowed nearly 10 lakh depositors to connect with us."

"We currently serve approximately 2.5 lakh active depositors through the bKash app with an outstanding portfolio of Tk160 crore. This product has successfully reached depositors across Bangladesh."

"We are also in the process of adding other services, including term deposits, through this platform. While a few banks offer similar services, we were the pioneers in launching this initiative," he added.

He further said, "When the central bank raised the cash margin to 100% on LC opening, we experienced some deposit withdrawal from corporate depositors to cover cash margins for import LCs. Now that the central bank has revoked the cash margin-related circular, we are expecting more deposit flows to IDLC from corporate customers."

Focus on sustainability and recognitions

IDLC's sustainable finance accounts for 34.53% of its total loan portfolio. In 2023, IDLC achieved a 44.33% disbursement under Sustainable Finance, well above the 20% annual disbursement requirement set by the Bangladesh Bank.

Additionally, IDLC's green finance represents 9.42% of its total loan portfolio, with an 11.88% term loan disbursement under Green Finance in 2023, surpassing the central bank's 5% annual term loan disbursement requirement.

IDLC was recognised by Bloomberg for its leadership in Environmental, Social, and Governance (ESG) practices and has won the Bangladesh Bank Sustainability Award four times consecutively. Furthermore, IDLC has achieved an AAA credit rating for 13 consecutive years, underscoring its financial strength and robust risk management.

M Jamal Uddin, CEO & Managing Director of IDLC, told TBS, "Our commitment to good governance and ethical practices is what has kept us strong for nearly four decades, and we will continue to uphold these principles as we grow."

With a strong foundation built on transparency, ethical governance, and a commitment to sustainability, IDLC has consistently demonstrated its ability to navigate challenges in the financial sector.

Through pioneering efforts in digital deposits, support for SMEs and women entrepreneurs, and significant strides in sustainable finance, IDLC remains a trusted leader in Bangladesh's financial landscape.

As the company continues to expand its portfolio and maintain a low NPL ratio, it sets a benchmark for other institutions in the industry, ensuring long-term value and security for its customers.