Idlc Ar 2013

Rising Above. Going Beyond!The year 2013 was one of sheer resolve and resilience at IDLC Finance Limited.

Even as the global and national economic situation continued to be enveloped in a pall of gloom, we reported respectable financials driven by a 34% increase in our loans and advances book, 33% increase in our revenues and 37% increase in our operating profit with the same parameters recording growth of 26%, 25% and 13%, respectively, for the IDLC Group.

Interestingly, the big story at IDLC is not the year that passed by, but the years to come.

Not the fact that we continued to sustain our leading and pioneering position in the NBFI space in Bangladesh, but having created strong foundations, we are likely to remain so into the foreseeable future.

Hence, our overarching message to our stakeholders is that we are rising above and going beyond, creating a trajectory of sustainable growth.

Welcome to the Annual Report 2013 of IDLC Finance Limited. These are the pillars of the document

IThematic Anchoring and Company PhilosophyOur Founding Philosophies – page 6 Who We are and What We Do – page 8Our Products & Services Basket – page 10 Words on Numbers – page 11Our Organisational Chart (Organogram) – page 12 Our Shareholding Composition – Page 13

IIIOperating and Financial ReviewBusiness Segment Review – page 34 Our Business Model Review – page 48Strengths and Strategic Key Performance Indicators – page 50

VRisk, Treasury and GovernanceStatement of Risk Management – page 68 Our Treasury – page 78Statement on Corporate Governance – page 82 Event Highlights – page 96Corporate Social Responsibility at IDLC – page 98 Our Human Capital – page 107Human Resources Accounting (HRA) – page 111

IIBird’s Eye View of Our CompanyLetter to Our Stakeholders from the Chairman’s Desk – page 16 Thematic Positioning – page 20Our Performance over the Past Five Years – page 24 An Analysis of Our Portfolio – page 26CEO & Managing Director’s Review – page 27 From Stepping Stones to Milestones – page 31

IVAt the Helm of Our AffairsBrief Profile of the Board of Directors – page 54 Management Committee (ManCom) – page 58 Senior Executives – page 60Committees of the Board & Management – page 62

VIFostering a Culture of Integrity – Reports and StatementsLetter of Transmittal – page 114Notice of the 29th Annual General Meeting – page 115 Report of the Audit Committee – page 116Assessment Report on the Going Concern Status of IDLC – page 118 Business Environment and its Likely Impact on the Financial Performance of IDLC – page 120Key Operating and Financial Highlights – IDLC Finance Limited – page 120 Key Operating and Financial Highlights – IDLC Group – page 121 Value Added Statement – page 122Market Value Added Statement – page 123 Economic Value Added Statement – page 124 Contribution to National Economy – page 125Highlights as Required by the Bangladesh Bank – page 126 Statement of Directors’ Responsibility for Internal Control, Financial Reporting & Corporate Governance – page 127

VIIUpholding Transparency – Statutory ReportingDirectors’ Report to the Shareholders of IDLC – page 130 Certification on Compliance of Corporate Governance Guidelines – page 136Status of Compliance with the Corporate Governance Guidelines (CGG) – page 137

IXShareholder’s CornerDisclosures under Pillar III- Market Discipline – page 231 Information for the Stakeholders – page 240Glossary – page 242IDLC's Presence – page 244Proxy Form & Attendance Slip – page 247

VIIIReports and Financial StatementsReport of the CEO & Managing Director and the Chief Financial Officer – page 148 Auditors' Report to the shareholders of IDLC Finance Limited – page 149

Consolidated Financial Statements – IDLC Group Consolidated Balance Sheet – page 151 Consolidated Profit and Loss Account – page 153 Consolidated Cash Flow Statement – page 155Consolidated Statement of Changes in Equity – page 157

Financial Statements – IDLC Finance LimitedBalance Sheet – page 159Profit and Loss Account – page 161 Cash Flow Statement – page 163Statement of Changes in Equity – page 165 Liquidity Statement – page 167Notes to the consolidated and separate financial statements – page 168

Financial Statements – Subsidiary Companies

IDLC Securities LimitedDirectors’ Report to the Shareholders – page 216 Auditors’ Report – page 220Statement of Financial Position – page 221 Statement of Comprehensive Income – page 222

IDLC Investments LimitedDirectors’ Report to the Shareholders – page 223 Auditors’ Report – page 228Statement of Financial Position – page 229 Statement of Comprehensive Income – page 230

Clear VisionAn eagle’s eyes are extremely powerful, enabling it to spot potential prey from a very long distance, sometimes as much as 50 miles! At IDLC, we also possess a crystal clear vision of emerging as the most-preferred nancial brand in the country.

IThematic Anch oring a nd Company Philosophy

Our Founding Philosophies – page 6

Who We are and What We Do – page

8

Our Products & Services Basket – page 10

Words on Numbers – page 11

Our Organisational Chart (Organogram) – page 12

Our Shareholding Composition – Page 13

ANNUAL REPORT2 0 1 3 Thematic Anchoring and Company Philosophy | Bird’s Eye View of Our Company | Operating and Financial Review | At the Helm of Our Affairs | Risk, Treasury and

Governance

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The Wind Beneath Our Wings. Our Founding Philosophies.

Our VisionWe will be the best financial brand in the country.

Our MissionWe will focus on quality growth, superior customer experience and sustainable business practices.

Our Strategic Objectives► Grow and develop our talent pool► Fully leverage the core banking platform► Optimise distribution points► Grow and diversify funding sources► Grow sales and service capabilities in the Consumer division► Aggressively grow SME portfolio► Focus on top-tier clients in the Corporate segment► Consolidate capital market operations and enhance capabilities► Embrace internationally accepted Corporate Governance and sustainable business practices

Our Core Values► Integrity► Customer Focus► Trust and Respect► Equal Opportunity► Eco-friendly► Passion► Simplicity

Fostering a Culture of Integrity – Reports and Statements | Upholding Transparency – Statutory Reporting | Reports and Financial Statements | Shareholder’s Corner

Our Code of Conduct and EthicsIn accordance with the approved and agreed Code of Conduct, IDLC employees shall:

► Act with integrity, competence, dignity and in an ethical manner when dealing with customers, prospects, colleagues, agencies and the public

► Act and encourage others to behave in a professional and ethical manner that will reflect positively on IDLC employees, their profession and on IDLC at large

► Strive to maintain and improve the competence of all in the business► Use reasonable care and exercise independent professional judgment► Not restrain others from performing their professional obligations► Maintain knowledge of and comply with all applicable laws, rules and regulations► Disclose all conflicts of interest► Deliver professional services in accordance with IDLC policies and relevant technical and professional standards► Respect the confidentiality and privacy of customers, people and others with whom they do business► Not engage in any unprofessional conduct involving dishonesty, fraud, deceit or misrepresentation or commit any act that reflects

adversely on honesty, trustworthiness or professional competence

IDLC employees have an obligation to know and understand not only the guidance contained in the Code of Conduct but also the spirit on which it is based.

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IDLC Finance Limited is Bangladesh’s largest and fastest growing Non-Banking Finance Institution (NBFI)Our legacyIDLC Finance Limited, incorporated as Bangladesh’s pioneering leasing company, was established in Dhaka in 1985 and was constituted through the collaboration of International Finance Corporation (IFC), German Investment and Development Company (DEG), Kookmin Bank, Korea Development Financing Corporation, The Aga Khan Fund for Economic Development, The City Bank Limited, IPDC of Bangladesh Limited and Sadharan Bima Corporation.

Who we are todayIDLC has emerged as a pioneering multi-product NBFI in Bangladesh with 26 branches and over 642 team members.

What we offerIDLC offers a wide range of products and solutions comprising loans, deposit and capital market products and services to corporate, consumer and SME clients.

Our subsidiariesIDLC also operates two wholly-owned subsidiaries in the capital markets through IDLC Investments Limited (providing merchant banking services) and IDLC Securities Limited (providing brokerage services).


Our listingIDLC is listed on the Dhaka and Chittagong stock exchanges. The Company’s market capitalisation stood at Taka 10,119 million as on 31 December 2013.

Our promoters/ directors holdingThe promoters/ directors of IDLC hold 63.82% of the Company’s common equity.

Dividend declared, 2013IDLC has declared a stock dividend @ 25% (one Bonus share for every four shares held) and cash dividend @ 5% (Taka 0.50 per share) for 2013.

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Our Products & Services Basket – catering to wide-ranging customer needs and requirementsSmall and Medium Enterprise (SME)

► Small Enterprise Finance■ Small Enterprise Loan/ Lease■ Seasonal Loan■ Women Entrepreneur Loan■ SME Shachal Loan■ SME Surakkha■ SME Deposit

► Medium Enterprise Finance■ Medium Enterprise Lease/ Loan■ Commercial Vehicle Finance■ Machinery Lease■ Healthcare Finance■ Revolving Short Term Loan■ SME Deposit

► Supplier & Distributor Finance■ Factoring of Accounts

Receivable■ Bill/Invoice Discounting■ Work Order Financing■ Distributor Financing

Consumer inance

► Home Loan► Flexible Term Deposit Package► Car Loan► Regular Earner Package► Personal Loan► Loan Against Deposit

Corporate Division

► Corporate inance■ Lease Financing■ Term Loan Financing■ Working Capital Arrangement

■ Project Financing Appraisal■ Specialized Products

► Structured inance solutions■ Loan/ Lease Syndication■ Private Placement of Equity■ Preference Shares■ Project/ Infrastructure Finance■ Bond■ Foreign Currency Loan■ Refi of Special Funds■ Mergers & Acquisitions■ Joint Venture Matchmaking■ Balance Sheet Restructuring■ Feasibility Study■ Securitization of Assets■ Structured Solutions

Treasury

► Common Equity Investments► Term Placement► Call Placement► Zero Coupon Bonds► Debenture

Capital markets

► IDLC Securities Limited■ Brokerage Service■ CDBL Service

► IDLC Investments Limited■ Margin Loan Operations (Cap Invest)■ Discretionary Portfolio Management (MAXCAP)■ Corporate Advisory■ Issue Management■ Underwriting■ Research


Words on Numbers

50,429 million taka Total Assets

31%Compounded annual growth rate of term deposits over 2009-2013

29%Compounded annual growth rate of our loans and advances (excluding margin loan) over 2009-2013

1.63%NPL

642Team strength

29,064 million taka Term Deposits

40,941 million taka Loans and advances

3.71%Net interest margin

29,976Customer and client relationships

26Branches

* As on 31 December 2013

11

8 Branches

Board of Directors

Credit Risk Management

Corporate SME

Consumer

IDLC Securiies Limited Operaions

IDLC Investments Limited

Audit Commitee Execuive Commitee

CEO & Managing Director

Credit Evaluaion Commitee

Human Resource DMD & CFO

Internal Control & Compliance Finance

Statutory Reporing &Corporate Affairs

Special Asset Management Treasury

Informaion Technology 6 Branches Administraion

Corporate SocialResponsibility

Markeing Communicaion 9 Branches

Our Organisational Chart (Organogram)

1 Branch

Structured Finance

Supplier & Distributor Finance

9 Branches

2 Booths

ANNUAL

REPORT

2 0

1 3

Thematic Anchoring and Com

pany Philosophy | Bird’s Eye View of Our Company | Operating and Financial Review | At the Helm

of Our Affairs | Risk, Treasury and Governance

12

Credit Administraion

Service Delivery


Our Shareholding CompositionAs on December 31, 2013

The City Bank Limited 45,634,598 28.37

Transcom Group 21,449,885 13.33

Eskayef Bangladesh Limited 12,870,000 8.00

Transcraft Limited 6,456,335 4.01

Bangladesh Lamps Limited 2,123,550 1.32

Sadharan Bima Corporation 12,257,065 7.62

Mercantile Bank Limited 12,065,625 7.50

Reliance Insurance Co. Limited 11,261,250 7.00

Sub-Total 102,668,423 63.82

2 General

Institutions:

Bangladesh Fund 5,145,910 3.20

Pubali Bank Limited 2,566,100 1.60

Marina Apparels Limited 1,608,750 1.00

Other Institutions 14,069,269 8.75

Sub-Total

Individuals:

General Public

23,390,029

34,816,548

14.54

21.64

Sub-Total 34,816,548 21.64

Total Holdings 160,875,000 100

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Sl.No. Name of ShareholdersNo.of

Shares%

1 Sponsors/ Directors:

ANNUAL REPORT2 0 1 3

Sky SovereignsEagles are large, powerfully-built and much-feared birds of prey. Just as they are referred to as sky sovereigns, at IDLC, we are also sky sovereigns, being the largest and most-respected leaders of the NBFI industry in Bangladesh today.

Bir d’ s Eye View of Our Company

Letter to Our Stakeholders from the Chairman’s Desk – page 16

Thematic Positioning – page 20

Our Performance over the Past Five Years – page 24

An Analysis of Our Portfolio – page 26

CEO & Managing Director’s Review – page 27

From Stepping Stones to Milestones – page 31

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Letter to our stakeholders from the Chairman’s deskAT IDLC, WE HAVE CREATED THE CULTURE OF OUR ENTERPRISE AROUND OUR CUSTOMERS RATHER THAN OUR PRODUCTS. THIS SINGLE-MOST IMPORTANT DIFFERENTIATOR HAS ENABLED US TO ALIGN OUR THOUGHT PROCESSES, OUR STRATEGIES AND OUR INITIATIVES AROUNDWHAT MATTERS MOST TO OUR CUSTOMERS AND CLIENTS.

WE ARE ALSO A COMPANy THAT PROMOTES CONNECTEDNESS – NOT jUST CONNECTING OUR CLIENTS AND CUSTOMERS WITH THE BROADEST ARRAy OF DEPOSIT AND LOAN PRODUCTS AND SERVICES BUT ALSO CONNECTING EACH OTHER, LEVERAGING THE POWER OF RELATIONSHIPS.

Anwarul HuqChairman

Dear fellow stakeholders,The year 2013 can be encapsulated on our efforts that focused on three broad objectives –

► First, having created strong foundations in terms of penetration, technology, processes and people, consolidating our activities and operations for our next phase of growth.

► Second, rebalancing and realigning our portfolio towards our overarching corporate philosophy of financing happiness, and in doing so, further strengthening our presence inthose segments which are relatively unrepresented by the traditional banking network and creating strong bonds on the basis of opportunities and mutual respect.

► Third, reinforcing the quality of our Balance Sheet and capital position to create the right conditions for long-term shareholder value growth.

Rising above, going beyondAs we take the essence of these initiatives forward, we have

emerged as a much stronger Company today than what we ever were on the timelines of our history. Our well-defined vision, strategies and operating principles continue to guide us as we pursue our goals. Our success in doing so is already reflectedin the fact that our clients have deep faith and trust in us and

AS WE TAkE THE ESSENCE OF THESE INITIATIVES FORWARD, WE HAVE EMERGED AS A MUCH STRONGER COMPANy TODAy THAN WHAT WE EVER WERE ON THE TIMELINES OF OUR HISTORy.

choose us to deposit a growing channel of their funds; our customers choose to bring us more of their business and make us their primary financial institution; our employees choose us to build their careers and aspire for achieving their aspirations and ambitions and shareholders realise the long-term value our enterprise can deliver, translating into steady growth in tangible book value per share, attractive total shareholder returns and consistent performance through economic cycles.

Relevantly so, even in the face of several significant challenges that we encountered in 2013, we made good progress in advancing our Company towards our long-term vision. Particularly, as we transformed the Company from the year ago period, we recorded a respectable 32% growth in term deposits and 26% growth in advances, kept our NPL (non-performing loans) tightly under control to 1.63% of the overall advances (2.09% NPLin 2012) and, most importantly, built on our market-leading capabilities to serve our clients’ and customers’ core financial services needs, hence reporting a healthy 15% growth in our operating income to Taka 2,763 million, up 28% from the year ago period. Moreover, we tightened our cost structures in our bid to create a culture of ‘more and more from less and less’ with the result that our operating profit increased 13% to Taka 1,518 million, a significant achievement in a challenging economic scenario. As a prudent and conservative financial measure, we


Term Deposit

32%

Loans and Advances

26% 0.46%

more than in the same period last year. Though this picture might look rosy at fi glance, the drop in imports shows that the country is not importing manufacturing equipment and capital goods, which might affect the economy in the long run.

also made provisions to the extent of Taka 1,044 million in our consolidated Balance Sheet.It gives me the confidence therefore to tell you that our Company today has reduced risk and is less complex. As a stronger and more agile corporate, we are building deeper relationships with our clients and customers and are doing what we can to help restore confidence and strength to our economy.

Overview of the Bangladesh economyThe global economy continued to be pummelled by several factors including the Euro Zone crisis, steady global food prices, global oil price escalation, depressed consumer spending, banks succumbing to credit and market risks and an overall depressed sentiment. The Bangladesh economy was not only impactedby these global economic vulnerabilities but increased political instability, labour unrest and declining trade and commerce compounded matters further for our 160-million-strong country.Moreover, inadequate infrastructure, tightening access to credit on account of liquidity challenges, inefficient bureaucracy, political uncertainty and high inflation continued to remain the core factors impacting national growth. Also, shortage of electricity supply to power-intensive industries and poorly functioning roads and ports have widened the cracks in the growth path of the country.As a result of these challenges, the Bangladesh economy, which was aiming to achieve a growth of 7.2% in 2013-14 will only touch a 5.7% growth during the fiscal, indicates the World Bank’s half yearly report. This projected growth comes on the back of a healthy 6.3% GDP growth recorded in 2012-13. The turmoil in the recently-concluded national elections created an unfavourable investment climate and both domestic and foreign capital stayed away from investing in the country.

Source: Finance Ministry

Remittances from expatriates also dropped a sharp 8.4% in the fi six months of the fi 2013-14 after rising a stellar 12.6% in 2012-13. Considering that remittances are the second most important mainstay of the country after garment exports, themedium to long-term trend is indeed worrisome. Moreover, due to rising exports and a drop in import costs, Bangladesh registered a massive surplus in foreign transactions in the fi

half of the 2013-14 fi at around USD 1.38 billion, almost three times

Source: Bangladesh Bank

Consequently, on the expenditure side, investments as a share of GDP remained nearly the same at around 25% while privateinvestment declined from 19.5% of GDP to 19.1% between 2010- 11 and 2011-12. Though the investment target for 2012-13 was pegged at 29.6% of GDP, the present state of the global economy and internal supply constraints will make this a tough projection.

As per the Bangladesh Economic Update, October 2012, notwithstanding increasing subsidies, the fiscal performance was favourable. The 2012-13 Budget deficit target at 5% of GDP is modest though higher than the estimated 4.5% of 2011-12, although it is likely to fall short of expectations mainly because ofa shortfall in the implementation of the ambitious Taka 550 billion Annual Development Program. Financing the deficit poses a major challenge with a projected USD 2.2 billion net external financing needed, more than the USD 1.4 billion of the revised 2011-12 Budget. The rest of the deficit is projected to be financed from domestic sources, with a 69% reliance on bank borrowing.

Operating principles that move us forwardWith a view to execute our vision, we have focused our strategies and directed our efforts to sustain our position as a forward- facing company.

Customer centricityAs a customer-led Company, we are intently listening to our clients and responding to their needs and preferences. They value clarity, choice and healthy advice and choose us as theirpreferred financial partner. This is precisely the reason why repeat business comprises a solid 52% of our turnover (2013), enabling us to create a strong sense of goodwill for our franchise. Wehave also developed employee incentive, reward and recognition programmes that align with our customer experience goals and represent our ability to build a strong pipeline of business driven on the foundations of profitable relationships. The result of these initiatives is the fact that we see immediate improvements in customer satisfaction, problem resolution and willingness to broaden and deepen relationships.

In serving businesses – from 6,872 SME relationships (which is of the largest such pools in the NBFI space in the countrytoday) to 856 large corporate clients to 7,203 retail clients – our belief is value creation by pursuing broad, deep and long-lasting relationships.

22,0

08

29,0

64

40,9

41

32,5

95

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mitigate revenue and geographical concentration risks, prudently balancing our assets and liabilities and controlling our expenses with a tight fist.

We believe that the execution of these measures has led to less volatile earnings per share growth and steady capital generation. We also believe that this will result in attractive growth in book value per share, support a higher multiple for the stock and enable us to stay consistent with our dividend payout policies.

It gives me pleasure to mention that even in a challenging environment, we declared a stock dividend of 25% (one bonus

Pursue operational excellence and manage risks prudently An important element in our strategy is achieving operational excellence and incremental productivity gains throughout theorganisation. We believe that this is exactly where we canstart our journey of building stronger relationships – with our customers by getting it right the first time, hence building loyalty and with our employees by creating a dynamic team and linking performance with pay.

We streamline and focus our resources on driving operational excellence for our customers by leveraging the power of technology. We are using Flexcube as our core banking software and through this, we are automating processes, shrinking application-to-disbursement timeframes, liberating wasteful expenditure and conserving resources. Through Flexcube, we are also integrating our head office with all our branches, thereby enabling quicker decision-making, which represents the most significant driver in building long-lasting relationships.

Operational excellence in risk management is especially important, as we continue to build on our work to institute new, rigorous risk management controls and procedures throughout the organisation. In the face of a challenging economic scenario, these efforts are contributing to improving our credit quality results.

Building a stronger Balance Sheet

Building and maintaining a fortress Balance Sheet through various economic cycles requires the need for strong liquidity and credit reserve positions, robust asset quality, strong capital management practices and prudent balancing between assets and liabilities.

Despite the fact that we recorded a healthy 26% growth in our advances to Taka 40,941 million at the close of 2013, we significantly reduced risk-weighted assets, with the result thatour NPL levels stood at among the lowest levels in our industry in the country. We also mobilised Taka 11,458 million as deposits, registering a healthy growth of 16.5% over the past year. This clearly reflects the faith individuals repose in us and entrust their long-term security in favour of our various deposit products that enjoy the highest rating across categories.

Our net interest income of Taka 2,078 million (2,134 million for IDLC Finance Limited) in 2013 grew by 19% ( 31% for IDLC Finance Limited) over the last year and net interest margins of 3.71% continues to remain one of the highest in the NBFI industry in the country today.

Focusing on our shareholder return model

Our shareholder return model is geared towards enhancing long-term value in the hands of our investors and directs us totake decisions and actions that are aligned with this core guiding principle. Our shareholder return model encapsulates the

creation and sustenance of a strong Balance Sheet, achieving consistently sustainable revenue growth, diversifying our business exposure to

share for every four shares held) and cash dividend @ 5% or Taka 0.50 for every share of face value of Taka 10, in line with our philosophy of rewarding our shareholders with their faith and belief in our business model. As we pursue our long-term growth strategies, we invite you to remain invested in our Company.

Consolidation

The recessionary environment took a toll in terms of lowering the spending power of millions, which in turn halted capital assetexpansion and lowered industrial production. The capital markets also continued to remain volatile with retail investors largely remaining in the wait-and-watch mode. Besides, depressed primary markets and low valuations also halted the IPO (Initial Public Offer) plans of several corporates with the result thatonly 10 IPOs were floated during the course of 2013, mopping up a cumulative Taka 3,966 million as against 12 IPOs in 2012 absorbing Taka 14,197 million. In fact over the past three years, the country has witnessed the flotation of only 33 IPOs raising a total of Taka 25,465 million from 31 IPOs raising Taka 21,022 million during the preceding three years. The average daily turnover on the Dhaka Stock Exchange continued to remain suppressed at Taka 4,003 million in 2013, continuing from Taka 4,209 million in 2012.

We operate two wholly-owned subsidiaries in the capital markets and investment banking businesses under IDLC Securities Limited (IDLCSL) and IDLC Investments Limited (IDLCIL). We are makinga provision of Taka 81.20 million in the IDLCIL Balance Sheet for 2013 as a prudent accounting measure towards cleaning our operations and consolidating our Balance Sheet (consolidated), hence creating the foundations for sustainable long-term growth.

Building the Company on strong foundations

At IDLC, we view the governance and oversight of our distinctive business model and prudent strategy as key to the ongoing creation and delivery of value to our stakeholders, particularlyin an economic environment that remains both uncertain and challenging.

At our Company, the Board’s primary role is to provide leadership, ensure that it is appropriately managed and deliver long-term shareholder value. It also sets the Group’s strategic objectives and provides direction as a whole. A number of key decisions are reserved for and may only be made by the Board, which enables it and the executive management to operate within a clear governance framework. Some of the matters specifically reserved for the Board include:

► Setting and monitoring strategy.► Oversight of regulatory compliance and internal controls.► Ensuring adequate financial resources.► Acquisitions and disposals over certain thresholds.► Board appointments and removals.► Communication with shareholders.


To accomplish this, the Board has met nine times in 2013 and prior to each meeting, it receives reports not only on the results of each of the three divisions and the two subsidiaries and key performance indicators but also detailed updates on the progress and implementation of the agreed strategies for each division and subsidiary. The Board has the opportunity to discuss the reports and challenge each of the divisional business heads who attend all or part of the Board meetings on the progress and implementation of their divisional strategy. In addition, we also organise various forums dedicated to discussing and reviewing the Group’s long-term strategy with the executive management.

At IDLC, we have also established and embraced – both in letter and spirit – our Code of Conduct, signed by each and every member as an acceptance to adhere to the principles of the Code during all business dealings. The Code also sets out guidance on best practices in the form of principles and provisions on how we should adopt and follow good governance practices. It has been the Board’s view that the Company’s governance regime has been fully-compliant with the best practices set out in the Code during the year under review.

Corporate responsibility

Almost six years after the global financial crisis erupted and engulfed most of the world, 2013 saw the economic tide slowly begin to turn. Housing markets started to stabilise, economies around the globe found their footing and unemployment rates trickled downwards. At IDLC, we remain optimistic that betterdays are ahead; however we also believe that there are still far too many people looking for jobs even as the government faces fiscal and administrative constraints and vital social service providers are stretched thin, struggling to make ends meet.

As the financial crisis and the ongoing challenges have demonstrated, the world is more complex and our economies more inter-connected than at any time in history. Global competition is more formidable than ever. Populations are growing rapidly and rising urbanisation is creating the need for new jobs and putting pressure on local infrastructure, education, housing, energy, clean water and other critical resources.

At the core of our values, IDLC believes that using our strength and reach, our expertise and relationships and our access to capital to support our clients and communities, invest in them and help them navigate through the challenging times rightly encapsulates our fundamental corporate responsibility. When we are successful, we create the foundations for widely shared growth and long-term prosperity.

On the corporate responsibility front, there was a lot for us to be proud of during 2013. At a time when job creation is top priority for communities around our country, we catalysed our lending to small businesses, thereby helping accelerate both direct and indirect employment; invested over Taka 5.16 million (Taka 2.47 million in 2012) in our overall community development projects both directly and in partnerships with other organisations of repute and worked to improve the lives of under-served and the marginalised under several umbrella programmes. Our people donated significant amounts of time and money to help local charities and we continued to uphold our duty to support our communities through hiring, housing and education.

We also advanced our environmental stewardship and innovation across our lines of business in close partnership with clients and through careful management of our direct operations, including energy use, greenhouse gas emissions and careful use of precious resources including paper and water, among others. We

also actively engaged in several environment programmes during the year under report, including plantation drives, enhancingthe green cover and engaging with our customers on improving their operating environment. Significantly, we also refrained from lending capital to those projects/ industries which we believe might potentially and irreparably damage the environment.

Taken together, these efforts reflect our responsibility to invest in our communities and we are committed to doing more in the years ahead. We know that to progress, we need to operate with integrity and continually strive to gain the confidence of all our stakeholders, the pursuit of which motivates us every day.

Focused on the future

Our 2013 results demonstrate that while we have made good progress in strengthening the Balance Sheet and focusing our capital to support the core capabilities of our customers, the state of the national economy as well as probable regulatory changes continue to cast their shadow over the medium term.

However, I continue to remain optimistic on the long-term prospects of our nation considering a vast population, relative under-penetration and a strong entrepreneurial drive. We will continue to leverage our core competencies comprising a widely dispersed branch network (26 branches at the close of 2013);a solidly growing deposit base (term deposits grew at a 31% CAGR over the past five years); a relatively well-balanced and de-risked portfolio comprising Corporate, SME and Consumer; a robust disbursement growth (customer advances grew at a 20% CAGR over the past five years); declined NPLs (NPL of 2.32%in 2011, 2.09% in 2012 and 1.63% in 2013); a cherished and widely-recalled brand equity founded on the premise of financing happiness; a strong, motivated and productive staff-force (642 employees with revenue per employee growing from Taka 9.04 million in 2012 to Taka 10.74 million in 2013) and our position as a responsible NBFI through remaining Bangladesh’s only United Nations Environment Programme Finance Initiative (UNEP-FI) certified corporate that drives us to preserve the environment and refrain from extending credit to particular sectors.

We enjoy leading positions in almost every business in which we compete and operate. We serve thousands of consumers, businesses and investors, each of which provides an opportunity for us to expand our relationship with them.

The year 2014 will bring its own mix of successes and challenges, but our direction is crystal clear. We will continue to focus intently on what we can control – providing our customers and clients with the best services and most comprehensive financial solutions in the market, managing our costs, and doing our part to keep the economy moving forward.

As we proceed, I deeply acknowledge the efforts of my fellow colleagues on the Board, our employees and their continued commitment. I also thank our customers and clients for their confidence in our ability to deliver results and our shareholders for continuing to share our journey.

As always, I welcome your thoughts and feedback as we move forward together.

With warm regards,

Anwarul HuqChairman, IDLC Finance Limited

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32%Term deposits growth, 2013

26%Advances growth, 2013

Thematic Positioning

Unleashing insights. Reinforcing foresight.At IDLC Finance Limited, we have extended our wings to accelerate momentum, anchoring our business around five distinct drivers that include:

1. Focus on enhancing our reach and penetration towards ensuring inclusive coverage – through enhancing our branch network

2. Focus on leveraging the power of technology through the introduction of Flexcube – to shrink processing time, cut unnecessary delays and reduce overall turnaround times

3. Focus on our most valuable assets, our people – to ensure that they represent the progressive face of IDLC and stand for the principles of honesty, commitment and customer-centricity in all that we do

4. Focus on portfolio rebalancing – towards optimising our cost of deposits on the one hand and enhancing our share of advances on the other

5. Focus on branding and visibility – to take our message to our audiences and create a favourable recall



Expanding prospects. Enhancing capabilities.In a business that is founded on the basic premise of trust, we have consistently managed this intangible through an ability to understand deep consumer insights, align products and processes to these requirements, deliver value to consumers and position our brand relevantly and prominently.

At IDLC, we positioned our brand around the distinctive proposition of ‘financing happiness.’

This immediately translates into our consistent focus on empowering our customers with products and solutions that take their business ahead and in doing so, strengthen the spirit of entrepreneurship and contribute to the success of our country’s economic growth. Our proposition also means robust governance for shareholders, career progression for employees and responsible citizenship for the community, resulting in happiness for all.

Our ability to consistently create the bonds of trust has resulted in a growing customer base on the one hand and relatively low NPLs (non-performing assets) on the other.

5,985Customer accretion, 2013

1.63%NPL position, 2013

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19%Revenue per employee growth, 2013

5%Employee base growth, 2013


Consolidating competence. Sustaining growth.At IDLC, excellence is not just about scaling new heights. It is also about having a broader perspective and exploring newer avenues. Over the years, we have remained synonymous with growth and opportunity and today, we are consolidating our competence, expanding our horizons and exploring new dimensions towards sustaining growth.

We have a clear strategic blueprint that will help us navigate the organisation skillfully and prudently through various economic cycles, helping create sustainable long-term value. We intend to grow our branch network and sales teams to enable deeper penetrationand meet the large unmet financial needs of our customers. We intend to deepen the bonds of mutual respect among our clients and customers to explore opportunities to widen our product and services basket and hence create newer and more diversified revenue streams.

We expect to reinforce our deposit base by providing clients with a safe and secure channel to grow their savings while at the same time innovative on our products and processes to cater to the different needs of our customers – for instance, women entrepreneur loans and Abhasan loans are two specialised products that have helped meet specific customer needs.



Rising above. Going beyond.

IDLC is the country’s largest and most respected

NBFI with a loans and advances book of Taka

40,941 million (as on 31 December 2013).

IDLC disbursed an average of Taka 61 million every

day during 2013.

An IDLC branch is located every 11 km in Dhaka and about 100

km inBangladesh, strengthening customer and client access

and reach.

IDLC disbursed Taka 4,421 million worth of home

loans in 2013, enabling almost 6,013 families to

own their life’s most important asset – a home.

Even in a tough economic environment,

revenue per branch rose 25.32% in 2013.

IDLC is the only Company in its sector in Bangladesh

to be certified by the prestigious United Nations Environment Programme

Finance Initiative (UNEP-FI)

IDLC disbursed Taka 10,392 million worth of

SME loans in 2013, playing its role

in taking the Bangladeshi economy

ahead.

IDLC’s NPL in the Consumer (retail) division is one of the lowest in the finance

industry in Bangladesh at 0.54%.

IDLC’s application-to- disbursement cycle

(turnaround time) is about two days, one of the

fastest in the country’s financial sector.

IDLC’s repeat relationships contributed to 52% of its turnover of

Taka 6,900 million in 2013.

IDLC is one of the few NBFI players to offer NRB

as well as women entrepreneur loans.

IDLC invested 3,448 person-hours in CSR activities in 2013, up

from 2,672 person-hours in the previous year.

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Scaling New Heights – Our Performance over the Past Five Years

IDLC Finance Limited

* Net profi after tax for the years 2009, 2010 and 2011 include Taka 97.10 million, Taka 354.95 million and Taka 179.66 million, respectively, as net profi from merchant banking activities. Merchant banking business of the Company has been separated on August 16, 2011 through forming a separate subsidiary "IDLC Investments Limited".


IDLC Group

54%

18%8%

Taka in Crore

2.59

30.60 3.40 3.13

25

14.8

8

22.9

4

24.7

4

29.1

7

33.3

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27.24% 38.22%%

%

%34.54%

Our Wing Span – Sturdy Yet Flexible

An analysis of our portfolioPortfolio Loans and Loans and Percentage Percentage of Percentage of Net NPLs Team strength

identiication advances advances growth in total book in total book in (percent), (full-time and(Taka million), (Taka million), loans and 2013 2012 2013 contractual),

2012 2013 advances December 31,over 2012 2013

SME 10,178 14,334 40.83 38.22 36.36 1.58 290

Consumer 9,851 12,950 31.45 34.54 35.19 0.54 255

Corporate 7,963 10,213 28.24 27.24 28.45 3.31 13

Towards creating a balanced portfolio

Loans and Advances as a percentage of total customer assets portfolio

2009 2013

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SELIM R. F. HUSSAINCEO & Managing Director

“At IDLC, we are passionate about partnering ourclients and adding value to their businesses and society in general. We are committed to continuallyinvesting in the professional growth and developmentof our talent pool. Our organisation is driven by a focus on superior financial performance, sustainable business practicesand strong Corporate Governance."

Q&A with Mr. Selim R.F. Hussain, CEO & Managing Director, IDLC Finance Limited

How would you rate the performance of IDLC Finance Limited during the year under report?

he IDLC Group results for 2013 reflect the story of a Company on a high growth path, the full potential of which is currently masked by environmental factors that should

eventually abate.

At IDLC Finance, in terms of year-on-year (y-o-y) comparisons, core customer deposits grew by Taka 7,156 million or 33% while core customer loans and advances (to SME, Consumer and Corporate client segments) grew by Taka 9,401 million or 34%.

Net interest income, the key earnings indicator for any FI, grew y-o-y to Taka 495 million or 30% and fee-based income grew y-o-y to Taka 96 million or 33%. While the non-performing loan ratios (NPL) for the entire industry deteriorated, IDLC Finance’sNPL actually improved from 2.09% at the end of 2012 to 1.63% at the end of 2013.

IDLC Investments and IDLC Securities continued to be impacted by poor trading volumes and general depression in the country's capital markets.

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What were the key developments of 2013 that make you proud?

n 2013, despite a most difficult and challenging environment, IDLC Finance reported a very strong performance. Loans and deposits both grew well, several new products were launched,

a number of large syndication deals were concluded, new funding sources were found and the Company's brand was significantly enhanced through the receipt of several independent and reputed awards.

Some of the other transactions/ events of 2013 that particularly stand out include:

► Receipt of the ‘DHL-Daily Star Best Financial Institution Award 2012’

► Receipt of the SAFA (South Asian Federation of Accountants) Award 2011 as ‘Winner in the Financial Services Sector’ and ‘Overall Winner’ in all sectors of SAARC countries

► Successful financial closure of Taka 1,500 million of zero coupon bonds for IDLC Finance

► Agreement with FMO for five-year loan of USD 20 million (Taka 1,550 million)

► Emerging as a market leader in monthly home loan disbursements for most of the year

► Continued success at our SME business vertical on the back of small businesses reporting consistent growth

► Successful closure of several deals at our structured finance vertical:

■ Best Holdings Limited (Le Meridien): Taka 5,596.60 million

■ BSRM Steel Mills Limited: Taka 5,908 million and USD 40 million

■ Tradexcel Auto Bricks Limited: Taka 390.51 million■ WWR Bio Fertilizer Bangladesh Limited: Investment of

by our Consumer segment, also grew by Taka 7,156 million or 33%. All this (external) Balance Sheet growth was achievedduring a period during which the non-performing loan (NPL) ratio improved considerably, despite the last quarter of 2013 being severely hit by political disturbances and unrest.

How would you rate the performance of the two subsidiaries? Please share the key highlights for each along with the initiatives expected to be undertaken in 2014?

ur capital market businesses under IDLC Investments Limited (IDLC-IL) and IDLC Securities Limited (IDLC-SL) have suffered since the market collapse in end-2010,

similar to all other players in the market. Revenues have shrunk as trading volumes have declined dramatically while provisions have been made in line with BSEC regulations for those parts of the margin loan portfolio which have suffered impairment. Importantly, we have also de-recognised all income generated from such impaired assets, in line with the most conservative international accounting practices. We will continue to adopt such conservative accounting practices and plan to fully provide for any and all impaired assets in our portfolio by the end of 2014.

At the same time, the margin loan product itself has been significantly transformed from its original 2010 composition and a new, better controlled product is now in place. All theseefforts together will ensure that IDLC’s capital market businesses can restart operations with a clean slate from 2015 onwards or perhaps a few months earlier if the market picks up in 2014.

What are the key trends that are shaping the NBFI space in Bangladesh today? What are your key points of optimism?

► Successful automation of the HR

function

T in several macro indicators created potential

USD 450,000 by the Waste to Resource Fund (W2RF)How would you rate the performance of each of ourbusiness divisions – SME, Consumer and Corporate?Please share the key highlights of each of thedivisions along with the initiatives expected to beundertaken in 2014.

e reported a good performance across each of our three business divisions at IDLC Finance, which obviously could have been even better if not for the difficult last quarter of

2013. All three client segments grew their Balance Sheet well in 2013: The SME asset portfolio grew y-o-y to Taka 4,086 million or 40%; the Consumer asset portfolio grew by Taka 3,066 million or 32% y-o-y and the Corporate asset portfolio grew by Taka 2,249 million or 29% y-o-y. Our client deposit portfolio, mainly mobilised

he year 2013 was challenging for all businesses asBangladesh was approaching its national elections. Thoughimprovements

opportunities for businesses, these were largely overshadowed by the anticipation of political conflicts and subsequent adversity on businesses. As a result, despite stronger reserves and falling interest rates, several sectors curtailed expansion programmes anticipating political disruptions and putting multiple drags on both private credit demand and external trade. The financial sector was already shaky following the discovery of several large loan scams and rising non-performing loans amidst ongoing regulatory changes in the sector. The RMG (readymade garmentsector), the largest source of export earnings for the country, faced several challenges following multiple incidents centering around worker safety and access to markets abroad. Further, as political

turbulences peaked in the fourth quarter of 2013, a breakdown in the supply chain caused sufferings to all businesses.

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As the financial sector of Bangladesh evolves, there is a pressing need for FIs (or NBFIs as they are sometimes called) to also grow and develop. FIs will have to become more agile and nimble. The landscape for FIs has changed significantly, in terms of statutory and Corporate Governance requirements and also in terms of overall competition, over the past five years. The sector is facing strong competition from banks who have also moved into the leasing business. FIs will have to become more innovative and focused on their business acquisition and will need to carve out niches of their own. They will have to learn to build their own deposit mobilisation capabilities and fund themselves instead of depending solely on corporate or treasury borrowings.

At IDLC we are confident and optimistic about the future. Our enterprise is a highly corporatised and well-structured organisation equipped with a fully professional managementteam and an experienced Board who mentor and guide us with broad policies but, importantly, do not intervene in day to day affairs. This working relationship between the Board and the management team is unique in the country's financial sector and one that is based on meritocracy, respect and appreciation ofthe most cherished traditions of Corporate Governance. We have very clearly laid out and well-communicated goals and plans and are very much on track to achieve our medium and long termobjectives.

What is your immediate priority for 2014? What are the various ways in which we expect to reinforce our business?

ver the past four years, we have significantly invested in IDLC Finance in terms of people, technology, processes and branding. Our priority for 2014 is to leverage these

investments and continue to grow our Balance Sheet in a secure and sustainable way. This will translate into improved financial performance.

2014 will also launch our plans to expand our branch network across the country with the opening of five new branches.

We believe that with improved political stability in the country and appropriate investments in infrastructure, investor confidencewill be restored and the stock market will also witness dramatic improvements. The priority for IDLC Investments Ltd and IDLC Securities Ltd in 2014 will therefore be to recover from the challenges of the previous three years and step up into higher revenue streams.

Q Please enumerate the key CSR activities embraced during the year under report.

What are the key risks facing our business and how are we actively mitigating these?

ne of the major risks we face today is political instability, the kind we experienced much through 2013, particularly in the last quarter of the year. More than ever before, the

Bangladeshi economy needs peace and stability, law and order, good governance and discipline and an enabling environment that will attract and facilitate investments and drive entrepreneurship.

In Bangladesh, political unrest often translates into street violence and a breakdown of the law and order machinery, disrupting individual businesses and the economy at large. Since this is beyond our control, there is very little we can do to influence such macro-economic issues and any measures we undertaketo minimise risks in such circumstances can only be temporarily successful. If such political unrest persists, every institution in the country is bound to suffer. It is heartening to note that the first two months of 2014 suggest that the year will be much better than 2013.

In terms of normal business risks, IDLC is focused on enhancing its command and control capabilities by continually investing in cutting-edge technology, workforce training, data analysis and process re-engineering. We have fully-implemented processes to identify, analyse and report all seven core risks that the Bangladesh Bank has recommended. We are fully compliant with all risk assessments and statutory requirements.

t IDLC, we embrace a uniquely distinct concept for environmental and social initiatives that are focused on bringing forth measurable results at the grassroots – for

societies and communities whose basic needs remain unmet. Hence, we believe that aligning our corporate social responsibility (CSR) initiatives with strategies and efforts that create the maximum impact captures our deep sense of compassion towards humanity at large. Our cornerstone for such initiativesis integrating the 3Ps: People, Planet and Profit, thus creating a sustainable business. We also became members of the UN Global Compact (UNGC), UN Environment Program Finance Initiative (UNEP FI) and the CSR Centre in 2010 to conduct our sustainability initiatives in the right manner.

In 2013, IDLC’s prime focus was on community empowerment through skills development and sustainable livelihood generation for the underprivileged, with a particular focus on women empowerment. Our most notable project in this regard was conducted under a public-private partnership approach, targeting skills development and subsequent employment in the readymade garments sector. The project targeted social and economic empowerment of the underprivileged from North Bengal, oneof the most impoverished and underdeveloped regions of Bangladesh.

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In addition, IDLC also undertook a Model Village Project with VSO Bangladesh, focusing on capacity development of the youth community through various initiatives including:► Training on basic accounting practices and setting up an IT

centre► Primary healthcare awareness for the community► Environmental management through tree plantation,

increased use of organic fertiliser

To minimise the negative impacts of climate change and environmental degradation, IDLC conducted a campaign across different schools, with active participation from school children. The focus was to reflect on issues such as environmental pollution and mitigation measures, responsible resource consumption and the principles of reduce, reuse and recycle and consequently adopt feasible solutions. In 2013, eight schools were covered under this programme and IDLC will continue this campaign into 2014 as well.

Our regular activities included tree plantation, blanket distribution among the poor in North Bengal, Jessore and Chittagong during the winters, working with partner organisations for providing better education and healthcare facilities for underprivileged children, blood donation, employee vaccination and financial assistance for supporting the victims of the Rana Plaza tragedy.

In 2014, in addition to the core CSR activities, IDLC will also work on green banking activities to bring in place a more robust financing and operational framework with respect to environmental and social issues. Moreover, IDLC will also implement an environmental and social management system (ESMS) to streamline its policies and procedures in line with internationally-acceptable standards.

What is your broad message to the shareholders? How do you expect to create long-term value?

hile Group results have suffered from the capital market debacle of end-2010, the return on equity of IDLC Finance has been consistent over the past few years.

Shareholders will see the benefit of the investments we have made in IDLC Finance as the Balance Sheet continues to grow in a safe and strong manner. We are also confident that the ‘drag’ experienced on Group results because of the capital market businesses will also be more than mitigated by end of 2014 and going forward, Group (consolidated) financial performance will also improve over the foreseeable future.

At IDLC, we are passionate about partnering our clients and adding value to their businesses and society in general. We are committed to continually invest in the professional growth and development of our talent pool. Our Company is driven by a focus on superior financial performance, sustainable business practices and strong Corporate Governance and one whose ‘brand’ leads the financial sector of Bangladesh. As we move forward, we are confident about the future and will continue to enrich value in the hands of all those who invest in us, work with us and depend upon us.

What is your big picture vision for the next three years?

ver the last three years, IDLC has consistently grown both client deposits and loans at a significantly faster pace than the average of the country’s banking and FI industry.

This growth strategy will continue as we further leverage new technology and processes while refining our product focus. We plan to grow our branch network to cover much more of the country every year and intend to diversify into new products, sectors and geographies.

We have almost trebled our financing in the SME, Consumer and Corporate client segments in the last four years and will continue this growth rate - expecting to reach an asset base of Taka 100,000 million or USD 1.25 million by 2017.


From Stepping Stones to Milestones23 May 1985 Incorporation of the Company

22 Feb 1986 Commencement of the leasing business

1 Oct 1990 Establishment of a branch in Chittagong, the main port city of Bangladesh

20 Mar 1993 Listed on the Dhaka Stock Exchange Limited

7 Feb 1995 Licensed as a Non-Banking Financial Institution under the Financial Institutions Act, 1993

25 Nov 1996 Listed on the Chittagong Stock Exchange Limited

27 May 1997 Commencement of home finance and short term finance operations

22 jan 1998 Licensed as a merchant banker by the Securities and Exchange Commission

15 jan 1999 Commencement of corporate finance and merchant banking operations

29 jan 2004 Opening of the first focused retail branch at Dhanmondi

29 jun 2004 Opening of the Gulshan Branch

22 Nov 2004 Launched investment management services, ‘Cap Invest’

2 jan 2006 Opening of the first SME-focused branch at Bogra

6 Apr 2006 Opening of the Uttara branch

1 jul 2006 Relocation of the Company's Registered and Corporate Head Office at own premises at 57, Gulshan Avenue

18 Sep 2006 Commencement of operations of IDLC Securities Limited, a wholly-owned subsidiary of IDLC

14 Mar 2007 Launching of discretionary portfolio management services under ‘Managed Cap Invest’

5 Aug 2007 Company name changed to ‘IDLC Finance Limited’ from ‘Industrial Development Leasing Company of Bangladesh Limited’

6 jan 2009 Opening of the Sylhet branch

26 Aug 2009 Opening of the Gazipur SME booth

3 Feb 2010 Commencement of operations at Narayanganj

24 Feb 2010 Inauguration of the Savar branch

8 Aug 2010 Inauguration of a second branch in Chittagong at Nandankanon

27 Oct 2010 IDLC entered Comilla

23 Dec 2010 IDLC inaugurated its Narsingdi branch

27 Dec 2010 Opening of the Keraniganj branch

15 jun 2011 IDLC started operations at Mirpur

9 Aug 2011 Opening of the Tongi branch

16 Aug 2011 Commencement of operations of IDLC Investments Limited, a wholly-owned subsidiary of IDLC

18 jan 2012 Opening of the Jessore branch

11 Mar 2012 Rebranding initiative undertaken for IDLC

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ANNUAL REPORT2 0 1 3

Strategic FlightIn a fascinating instance, most eagles grab their prey without landing and take ight swiftly back upwards. At IDLC, we also possess a strategic ight path that guides us to grow our loan book to a projected Taka 100,000 mn by 2017 (Taka 40,941mn in 2013).

III Operating and Financial Review

Strengths and Strategic Key Performance Indicators – page 50

Business Segment Review – page 34Our Business Model Review – page 48


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► Segment status within Company: Largest► Portfolio: Financing products to a large bouquet of Small and Medium Enterprises (SME)► Disbursements over the past fi years (2009-13): Taka 26,845 million► Loan book as on 31 December 2013: Taka 14,334 million► Growth in loan book over 2012: 40.83%► Percentage of the overall loan book as on 31 December 2013: 38.22%► Turnover (gross), 2013: Taka 2,347.71 million► Contribution to Company turnover (gross) in 2013: 35.03%► Contribution to Company PBT in 2013: 30.48%► Total number of relationships: 6,638 clients, 7,041 accounts► Asset growth: CAGR 49.40% in the last 5 years; fastest in the industry

At IDLC, We Possess a Profitable Portfolio Built Through Focused Investments in High- Growth SectorsIDLC enjoys a rich and diversified presence in the NBFI space through its three focused verticals comprising SME, Consumer and Corporate and two subsidiaries comprising IDLC SL and IDLC IL. Its portfolio comprises an extensive range of financial products and solutions catering to wide-ranging customer needs and requirements.

Business Segment Review – I

Small & Medium Enterprises (SME)

OverviewIDLC SME (Small and Medium Enterprises) business vertical was established in the year 2006. The traditional banking network has usually avoided financing SMEs in Bangladesh due to a variety of reasons including their perceived delinquency risks, their dispersed location and their typical unorganized way of doing business. However, through prudent business policies and practices, IDLC has proved that the SME market segment is indeed a financially viable one. Over the last eight years, IDLC SME business has moved from strength to strength by enhancing its ability to serve a large section of the economy. Our focus on setting up a world class operational platform, customer centric business model and ever evolving, forward looking strategies has made our SME business a role model in the country. Our exceptionally strong asset quality and phenomenal growth in SME business is a reflection of our commitment for this sector which holds enormous potential.

We initially commenced financing SMEs through term loans, working capital loans and lease financing and over time, have introduced a variety of products to cater to specific needs of our clients. We have been continuously investing on our distribution network, technology, capacity development and new processes to build a robust, yet lean business model.

key competence drivers► Quick turnaround time (TAT): For small loans, our turnaround time can be as low as five working days, enabling us to build

stronger and loyal customer relationships.


► Prudent customer selection: We have a unique credit risk management model which enables us to make quick, informed and prudent credit decisions. This reflects in the quality of our asset portfolio.

► Robust internal processes and MIS: Leveraging the power of the state-of-the-art core banking system Flexcube, our on-ground team is ideally positioned to take advantage of business intelligence and insights. This effectively helps us generate more value internally and externally.

► Customer-centric: We believe in taking banking to the doorsteps of our customers. Our processes are designed to provide superior customer experience.

key inancials

Particulars 2009 2010 2011 2012 2013Growth over

2012 (%)

Disbursement (Taka million) 1,758 2,712 4,485 7,498 10,392 38.59

Outstanding (Taka million) 2,877 4,182 6,870 10,178 14,334 40.83

No. of active customers 1,338 2,004 3,462 5,222 6,638 27.12

key business trends and opportunities► Stable GDP Growth: A stable GDP growth has led to sustainable demand for consumer goods and services, resulting in the

emergence and growth of various new enterprises and unleashing the spirit of entrepreneurship in the country

► Sector-speciic Stimuli: Sector-specific stimuli driven by the government and other multi-lateral agencies

key risks impacting our business and their mitigation

► Political unrest: While SMEs are now perceived as being the leading growth vehicle in the economy, (encompassing a multiplier effect on employment, GDP growth as well as having a significant and positive impact on poverty reduction), an extended political crisis could hamper much of the economic progress achieved in this segment. As a financier in the segment, we work with a diverse set of customers thereby mitigating risks to some extent.

► Credit Risk: We embrace a proactive approach towards delinquency and credit risk management with the result that our NPLs (non performing loans) in this segment are the lowest in the country.

Blueprint for the future

In continuation to the preceding growth pattern, we will continue to expand our geographical footprint, introduce new products and bring in new dimensions in serving our customers.

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► Segment status within Company (funds disbursed, 2013): Second largest► Portfolio: Providing home loans, car loans, personal loans and loans against deposits► Disbursements over the past fi years (2009-13): Taka 15,376 million► Loan book as on 31 December 2013: Taka 12,950 million► Growth in loan book over 2012: 31.45%► Percentage of the overall loan book as on 31 December 2013: 34.54%► Turnover (gross), 2013: Taka 1,838.85 million► Contribution to Company turnover (gross) in 2013: 27.44%► Contribution to Company PBT in 2013: 24.84%► Daily average number of transactions in 2013: 84► Workforce strength (as on 31 December 2013): 255 members

As we grow bigger and better, we will effect changes to the organizational structure, creating a leaner and more flexible division. Overall, we plan to reach Taka 50 billion worth of portfolio by the end of 2017.

Some of our other initiatives include the following:

► We intend to continue to expand our geographical coverage. We will implement a new and improved model for loan appraisals, thereby driving automation and infusing scalability into our operations.

► We plan to integrate a world class customer relationship management solution into our core banking system to serve our customers even better. Collaborating closely with various multilateral agencies, we will work towards developing women entrepreneurs in the business and increase access to appropriate, market-based, business services for SMEs.

Mr. Zahid Ibne HaiGeneral Manager and Head of SME Division

“At IDLC SME, we strive to make life easier for our clients every day. From reengineering our existing processes to introducing new products, all our actions are undertaken with a view to make the borrowing experience quick, simple and hassle free.

We respect SME entrepreneurs for their contribution to the growth of the country; it is through gaining their trust that we have been able to ride on a exciting journey ofsupporting many small entrepreneurs. We take a lot of pride in being able to nurture and graduate many small enterprises into medium and large enterprises.

Our attitude and efforts have so far repaid us with growth, profi bility and most importantly, high degree of customer satisfaction, enabling us to generate a pulse in the market of being one of the “best fi brand” in the SME fi space.

In spite of the best efforts put forth by many fi institutions, a large stratum of the SME space in Bangladesh is still greatly underserved. However, we believe that the prospect of the SMEs in Bangladesh is big and bright as 95% of business entities inBangladesh fall under this category. By operating effi y and diligently, with focus and innovation, we can carve-up many niches in profi ble segments through which we can help many growth-hungry SMEs of Bangladesh unleash their potentials.”

Business Segment Review – II

Consumer

OverviewIDLC’s Consumer division was established in 1997 as part of the Company’s diversification towards the establishment of an alternative cost-effective source of funds for providing financial services to customers.

At present, the Consumer division is the second largest business segment of IDLC in terms of asset portfolio and the largest with regards to funds under management (advances and deposits). The significance of the division can be gauged from the fact that it

works as a brand ambassador of the Company for the retail segment by reaching at the doorstep of the targeted market with its wide range of lending (home loans, car loans and personal loans) and deposit products (flexible term deposit packages and regular earner packages).


The Consumer division contributes 77% to the entire funding basket of IDLC and holds 91% deposits (in volume terms) in the entire deposit bucket of IDLC at the close of 2013.

key competence drivers► Skilled and experienced resources: Our large pool of professional and experienced members enable business growth

through embracing quick on-ground decisions and building and sustaining customer loyalty.

► Strong relationship management/ customer-centricity: Strong customer orientation enables us to take quick decisions that are in the best interest of our customers. This explains why we enjoyed an average of 25 million disbursements every day in 2013 as compared with 16 million daily disbursements in 2012.

► Wide product range: We possess a wide basket of products that can be customised and our flexibility to design these products suit a diverse range of customer needs and requirements.

► Large branch network: Our network of 14 consumer based branches is spread strategically across Bangladesh, enhancing customer and client accessibility and enabling us to remain close to their requirements, thereby building strong comfort levels.

► Quick turnaround time (TAT): We enjoy a faster turnaround time from application-to-disbursement which has considerably improved over the years.

► Transparent pricing: Our well-documented processes and practices including our robust creditworthiness checks enable us to create transparent pricing propositions to our customers.

► Large deposit base: Our deposit base of over 5,500 customers repose their faith and trust in our products with average ticket size of between Taka 1-1.5 million.

► Diversiied deposit products: We offer a wide variety of customer-centric deposit products including regular term deposits, 500- day term deposits, double money deposits and triple money deposits, among others.

► Strong reputation and brand value proposition: Our strong brand equity and recall centered around the financing happinessproposition enhances the faith and trust of our clients and customers.

key inancials


2012 (%)

Home loan assets (Taka million) 4,818 5,645 7,025 8,366 11,308 35.16

Car loan assets (Taka million) 348 343 388 414 787 90.09

Personal loan assets (Taka million) 101 213 213 190 166 (12.63)

LAD (loan against deposit) portfolio (Taka million) 206 576 802 881 689 (21.79)

Deposit balance (Taka million) 9,780 12,373 16,828 22,008 29,064 32.06

No. of Customers – loans 1,512 2,556 3,525 5,169 6,013 16.32

No. of Customers – deposits 3,724 4,218 5,456 6,343 6,681 5.32

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key business trends and opportunities► As we face an unstable political situation and tight liquidity, we are effectively embracing transformation to drive more

customer value with leaner operations and fewer resources at our disposal. We are doing so through focusing on the 3 Ps – purpose, processes and people.

► Vulnerable real estate markets and a challenging car loan business has compelled us to remain focused and vigilant on opportunities as and when they arise.

► We are focused on improving employee profitability and productivity through robust performance management policies.

► We are also enhancing our focus on garnering a larger share of household deposits and increase business relationships with corporate houses.

key risks impacting our business and their mitigation► Political unrest and violent law and order situation: We realise that this is an external condition and beyond our

control; however we are tightening our ship towards creating greater efficiency across our operations.

► Market trend of deposit interest rates: We witnessed downward movement in deposit interest rates due to enhanced liquidity in the system. Our brand image as a trustworthy financial partner will continue to enable us to mobilise funds and we will actively benchmark deposit interest rates in line with the broader market.

► Growing competition in home loan products: We expect to counter rising competition in the home loan segment through leveraging our first mover’s advantage in the business, our widespread network, our quick processing and disbursement timeframes and our strong approach to relationship-building.

► Retention of deposits in uncertain economic conditions: We will continue to remain as the preferred financial partner, ensuring the security of our client deposits. At the same time, we will maintain adequate liquidity at all times.

► Uncertain change in policy/ process and guidelines by external stakeholders: We will continue to monitor the external situation vigilantly and take decisions which are in the best interest of our operations.


Blueprint for the future► Customer centricity: We plan to provide larger emphasis on:

■ Branding■ Establishments of new branches/ touch points to increase our geographical footprint■ Customer relationship management and customer feedback collection on a regular basis through different mediums

► Back to basics: We expect to initiate the following actions in 2014:

■ Developing key performance indicators and a score card for each business team member; all permanent members of the business team will be brought under monthly/ quarterly ratings

■ Retaining leadership in core products■ Ensuring the implementation of all training programmes for each staff member as per the yearly training calendar■ Regular circulation of the required MIS and better coordination among internal stakeholders for taking immediate action (as

and when necessary) to ensure continuous improvement► Focus on speciic areas: We expect to train our attention to key specific areas:

■ Assigning and monitoring cost accountability (business channel, department and employee-wise)■ Centralisation of credit administrative department of the consumer division■ Simplification of processes to ensure faster and proactive customer service■ Renovation of flagship branches as per the guidelines of the IDLC model branch set-up■ Reshaping the branch sales management structure to improve the overall performance level

► Focus on optimising operating costs: We expect to embrace proactive measures to monitor our operating costs in detail and take necessary action towards optimising these costs.

► Effective sales governance: We will empower our sales governance team and equip them to ensure greater control on CRE recruitment, CRE leave policy, TA-DA policy, training and providing other logistical support to CREs and FTs centrally in association with HR and other concerned departments.

Mr. Irteza A. khan Business Head, Consumer Division

“IDLC’s Consumer division offers signifi fl in products and convenience through possessing the largest branch network among the NBFI sector in the country. With strong representation of the division in all major branches and two dedicated consumer sales centers in Dhaka, the total loan portfolio and deposit bucket of the division stood at Taka 39,037 million as on December 31, 2013, registering a respectable 28% growth over 2012. Our team of 262 members (both permanent and contractual) played a key role behind this success.

The year 2013 represented an extraordinary and record breaking period. we were able to report a much higher growth compared to the rest of the industry, clearly reflthe effi of our robust business policies and practices. We strengthened our core capabilities and reinforced our delivery platforms to surge ahead in the home and car loan businesses even as we ramped up our retail deposit base quite successfully despite an adverse market scenario, especially in real estate and reconditioned car market sectors.

Going forward, we intend to build on our capabilities and our three-year business plan includes increasing touch points and visibility, doubling the existing loan portfolio and emerging as the market leader in home and car loan fi segments.”

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►►►►►►►►►►►

Segment status within Company (portfolio, 2013): Third largest

Portfolio: Lease fi term loans and loans for capital equipment procurement, among others

Disbursements over the past fi years (2009-2013): Taka 18,906 millionLoan book as on 31 December 2013: Taka 10,213 million Growth in loan book over 2012: 28.24%Percentage of the overall loan book as on 31 December 2013: 27.24% Turnover (gross), 2013: Taka 1,528.63 million (interest income plus fee income) Contribution to Company turnover (gross) in 2013: 22.81%Contribution to Company PBT in 2013: 13.67% Total number of relationships: 248 clientsWorkforce strength: 13 members

Business Segment Review – III

Corporate

Overview

IDLC started its wholesale lending business mainly with long-tenor products and subsequently launched short-term products. In 2000, it shifted focus from the tenor of products to various business segments. At the end of 2003, the Corporate division was formally created to cater to the financial needs of large organisations in the country. Since then, the division started its journey as a full-fledged business unit.

Earlier, the Corporate division handled only one product - leasing. Term loans and working capital products such as factoring, inter- corporate deposits (ICD) and other short-term loans were an insignificant part of the portfolio. However, this portfolio was soon rebalanced to reflect the effects of transformation post 2003.

key competence drivers

The Corporate division has created its own market niche despite having a limited offering. Over the years, it has strongly demonstrated the capability to survive, adapt and excel in the country’s ever-changing and dynamic industry environment. Some of the key strengths of this division include:

► High standards of Corporate Governance: The division upholds the highest standards of Corporate Governance and regulatory compliance. Though IDLC has undergone changes in the management and sponsorship, it has sustained the tradition of these standards, which has created strong brand equity to its customers.

► Strong resource base: The Corporate division enjoys a strong and motivated talent pool sourced from the best business schools and reputed banks on lateral entry. Moreover, continuous training and development helps sharpen skills and aids in business growth.

► Flexible inancing approach: Innovative products paired with a flexible financing approach have helped the division create its own niche in the industry. Being in the NBFI sector, the Corporate division does not have a wide spectrum of credit products. However this is more than compensated through the division’s approach to create innovative products (within the realms of regulations) that meet client requirements.

► Quick turnaround time (TAT): The division embraces quick financing decisions; it usually takes three to five working days to get back to customers with its analysis of the financing requirements, enabling them to plan quickly in advance. This is one of the major USPs for IDLC's business proposition.

► Diversiied portfolio: The division possesses a well-diversified portfolio across the sectors of food and beverages, apparels and accessories, building and construction, pharmaceuticals and healthcare, telecom, textiles, financial services and iron and steel. This balanced portfolio helps mitigate concentration risks.

► Strong clientele: Some of the division’s top clients are prominent business houses of the country who possess solid credit ratings.This clientele helps create a low risk portfolio.


► Low NPLs: The division’s gross NPLs stood at 3.31% in 2013, which is lower than the industry average.

► Synergies: On account of the Structured Finance Department’s (SFD) robust loan syndication business, the Corporate division receives additional business out of the transactions of the SFD.

key inancials

Total revenue earned (Taka million) 717 703 764 1,114 1,529 37.25Portfolio/ asset size (Taka million) 5,327 4,654 6,332 7,963 10,213 28.24Disbursement 1,932 1,633 4,032 4,806 6,504 35.33

NPL (%) 7.01 6.35 6.30 5.12 3.31 (1.81)

Employee strength 8 8 11 13 13 -

key business trends and opportunities

► Being an emerging economy, Bangladesh continues to build on its economic trajectory and hence, industrial and corporate financing have become one of the key drivers of the economic growth.

► Rapid industrialisation has led to the increasing requirement for capital equipment and working capital. This trend enables financial institutions to participate in organic and inorganic projects and together with IDLC’s strong structured financing team, the division participates in projects of several mid and large-sized business houses throughout the country. Moreover, the Corporate division’s strategic alliances with renowned financial institutions have also aided in its business growth.

► Market liquidity directly affects fund flows – from savers to borrowers. During a cash crunch, borrowers find it difficult to fund their capital requirements. Such situations raise borrowing costs and only liquid FIs can benefit from such scenarios. The Corporate division has leveraged its strengths and has prudently taken advantage of these market developments.

► Corporate division also taps funds from the Bangladesh Bank’s refinancing windows, which not only enables pass on of lower credit costs to borrowers but also helps build portfolio and asset book.

► The division has been approved of offshore financing/ foreign currency facilities with credit lines from multilateral agency, enabling to provide customers with a greater choice for tapping low-cost funds.

► With each passing year, the division has widened its geographic coverage, especially in projects located in remote areas of the country.

key risks impacting business and their mitigation

► Credit risks: To address this risk, the Corporate division possesses a strong team of relationship personnel who have built strong bonds with clients. It is also committed to continuously improve the loan underwriting process through regular training on effective credit analysis. In addition, IDLC has a strong credit risk management department as a second layer to fi poor quality credit.

► Business risks: Being an NBFI, IDLC suffers from an inherent weakness of higher funding costs when compared with banks. Nevertheless, the business units are focusing on improving service levels, finding new niche areas and are constantly adopting innovative and attractive credit solutions to remain competitive.

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► Market risks: Though for an NBFI it is tougher to match interest rates during volatility, the division has been successful in matching interest rates during cyclicality with the help of its strong credit pool. Moreover, the division has little or no foreign exchange exposure.

► Operational risks: The division’s structure helps mitigate operational risks. Its robust reporting hierarchy helps proper supervision and enables the staff to understand and perform their tasks timely and accurately. Moreover, the software inputs are mainly handled by IT professionals and trained personnel.

Blueprint for the future

The year 2014 should be a better one for the Corporate division on account of the following planned initiatives:

► Providing financial solutions which can be customised by the division’s dedicated experts. In the coming years, the division expects to cater to client needs for bilateral, multi-bank loans or specialised financing products.

► Providing quick response with support from experienced product specialists and dedicated deal teams. The division will stay up- to-date with changing priorities, challenges, opportunities and needs to meet a wide variety of their funding requirements.

► Focusing on growing the quality of its portfolio and maintaining NPL below 2%. The Corporate division’s past record demonstrates continuous quality asset growth and it has targeted a portfolio of Taka 20 billion by 2017.

Structured inance(part of the Corporate division)

OverviewIDLC’s structured finance department (SFD) was established in 2000. The department commenced operations through loan syndication on the back of increasing demand for large industrial and infrastructure project financing. Over the years, the department continued to arrange syndication deals in the form of term loans and working capital facilities.

Presently, the SFD is involved in deals that require various modes of financing. Being one of the leading structured finance solution providers, the department arranges financing through a wide range of products that include term-loans (both local and foreign currency), working capital facilities, infrastructure financing and subordinated bonds for Tier-II regulatory capital requirements of commercial banks, among others. The department also provides financial advisory services to the business houses.

key competence driversOver the years, the SFD has emerged as a strong player and earned a solid reputation in the financial markets for its creditable performance. Several strengths have played a key role behind this success:

► Initial backing of IDLC management coupled with a strong Corporate Governance framework has enabled IDLC to establish a strong brand image in the market. The reputation of IDLC contributes immensely for booking loan syndication deals from large corporate houses of Bangladesh.

► Experienced team members possessing thorough knowledge of the industry. Besides, continuous development of our human resource has enabled the creation of several innovative customer-centric financial solutions.

► Strong management support provides comfort to the team towards the procurement of a larger pipeline of business deals and enhances the success of transactions.

► The sustenance of strong relationships with syndication partners and other stakeholders enables successful booking and execution of syndication deals. IDLC’s strategic relationship is not limited to local financial institutions but also extends to multilateral agencies, which aids in acquiring diverse and often low-cost source of funds.

► Innovative and low-cost solution for the complex transaction of the high-end corporate clients.

► Focused efforts on diversifying the portfolio through booking deals is ensured across multiple sectors like real estate, steel, power and hospitality, among others.

► Strong network with corporate houses and in-house industry research helps in the selection of the right clientele, which ensures growth and profitability as well as the maintenance of a quality portfolio.


key inancials

Employee strength 2 2 3 4 6Number of deals 1 1 1 2 4Total funds raised(Taka million)

1,323 - 9,550 Taka 2,280 million Taka 11,895 million and USD 30 million and USD 40 millionTotal fee income

(Taka million)11.88 3.19 2.64 30.62 47.39

key business trends and opportunitiesSocio-economic environment: The socio-economic environment of Bangladesh is one of the most important factors that drives business in the country. As one of the members of the LDC (least developed countries) group, the country’s GDP growth remains consistent despite an unstable political situation, corruption and Corporate Governance issues, among others. However being an emerging economy, Bangladesh is continuing on its growth path and hence, industrial and large project financing has become one of the key drivers of this transition. Bottlenecks created due to socio-economic challenges have resulted in a negative impact on various projects undertaken by the public sector, thereby indirectly affecting the private sector as well. For example, a delay in government approvals may delay overall project implementation. It is imperative that socio-economic conditions contribute positively to the overall infrastructure development of the country.

Large infrastructure projects: With growing urbanisation in recent decades, the demand for large infrastructure projects – transport, communication, water and energy, among others – is increasing rapidly. Large-scale financing is required for such projects and they provide opportunities to the SFD, enabling us to participate in the economic growth and business development. The public-private partnership (PPP) projects also play a vital role in the demand for syndicated financing of large infrastructure projects.

Market liquidity: Liquidity in the financial markets plays a significant role in investment opportunities for financial institutions. High liquidity supports financing of projects and results in increasing investments in large projects. Liquidity in the financial market is an important factor for the SFD to procure deals that result in successful fund arrangements.Different inancing modes: Economic development has created an appetite for large-scale projects. Currently, the large size and scale of projects require various forms of financing collaborations for the successful arrangement of funds. The incorporation of Islamic Financing (HPSM), IPFF (Bangladesh Bank/ World Bank) and foreign currency financing in loan syndication has helped the SFD to structure diversified modes of financing. In addition, a vibrant capital market is essential for structuring different products such as coupon bearing bonds, zero coupon bonds and convertible bonds, among others.Increasing demand in advisory services: With a growing economy, institutions require corporate advisory services. Providing advisory services has been an added source of business development for the SFD team. Various services include preparation of feasibility studies, business plans, mergers and acquisitions and valuation, among others. This service not only expands the opportunity of business but also opens up a different income-earning possibility.

key risks impacting our business and their mitigationChanges in government policies: Major changes in government policies create an adverse effect on businesses. Due to a change in the political situation, different projects face difficulties during implementation and operation. In addition, changes in tax and duty structures impact businesses which indirectly affect the business of SFD. As part of the mitigation measure, the SFD continuously monitors the trends in government policies and works together with large corporate houses to better assess the situation and find appropriate mitigation measures.

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“At the Corporate division, we are focused on strengthening our relationships becausethis lever not only helps create favourable recall and publicity but also opens up new prospects of business with existing clients. We also expect to remain close to their needs and requirements to be able to provide swift solutions that empower their businesses. At our structured fidivision, we also successfully closed several deals for reputed companies across Bangladesh and we intend to continue to structure attractive solutions that will take their business ahead.”

Mr. M. jamal UddinHead of Corporate Division

Lack of availability of required infrastructure: Unavailability of proper infrastructure hampers business growth. As a mitigation measure, the SFD actively engages in due diligence to ensure availability of the required infrastructure well before undertaking the fund arrangement process for such projects.Selection of equipment supplier: Most projects face implementation challenges on account of inappropriate selection of equipment suppliers. To mitigate the risk, the SFD engages an independent engineer/ consultant for projects. Hence, the department ensures constant project monitoring and provides a third eye view to lenders through the independent engineer/ consultant.

Interest rate luctuations: Fluctuation in interest rates creates a significant project risk, more so, as rising interest rates compel companies to resist taking large syndicated loans. In order to mitigate the risk, upper and lower bands for interest rates are structured to give adequate cushion to both client and lenders against fluctuations, thus creating a mutually-beneficial situation.

Natural calamities: Bangladesh is prone to cyclones, floods and hurricanes, which adversely impacts implementation of projects. As part of the mitigation measure, the SFD team ensures that projects are insured to cover most of the risks associated with natural calamities and other such incidents as fire.

Blueprint for the futureIn 2013, the SFD demonstrated impressive growth in loan syndication despite an adverse market scenario. In 2014, the department plans to expand its product portfolio to include all possible structured products. The SFD also plans to introduce new products like issuance of various bonds, asset securitisation and corporate advisory services for mergers and acquisitions. The team is already working on the arrangement of Tier-II bonds for two major banks in order to support their regulatory capital requirements under the Basel-II framework. The SFD also plans in providing banks with support through its advisory services on compliance-related issues to the Basel-III accord.

The team is also planning to introduce an Islamic bond (Sukuk) to support clients who prefer the Islamic banking framework.

Apart from its regular business, the SFD intends to arrange at least two seminars and training programmes for industry personnel in 2014. The goal of the seminars is to bring all stakeholders on a single platform and discuss different issues of syndication. The SFD team believes that this type of seminar and discussion will facilitate improvements in the process of syndication and also increase bonding among stakeholders. The goal of the training programme is to enhance professional capabilities of syndication professionals in the industry.

The vision of the department is to be the most-preferred partner in loan syndication in Bangladesh.


Capital market operationsOur capital market businesses under IDLC Securities Limited (IDLC-SL) and IDLC Investments Limited (IDLC-IL) have suffered since the market collapsed in end-2010, similar to all other players in the market. Revenues have shrunk as trading volumes have declined dramatically while provisions have been made in line with BSEC regulations for those parts of the margin loan portfolio which have suffered impairment. Importantly, we have also de-recognised all income generated from such impaired assets, in line with the mostconservative international accounting practices. As a result, IDLC Investments Limited suffered a net loss of Taka 213 million during the year under review.

Subsidiary review – IDLC Securities Limited

Brokerage services► Segment status within IDLC Group: Wholly-owned subsidiary

► Broker, Dealer (Dhaka and Chittagong Stock Exchange) and CDBL participant

► Customer base: number of active customers 10,756

► Market status/position in DSE: 5th largest in Bangladesh

► Workforce strength: 73 members

OverviewIDLC’s brokerage business operates under its fully-owned subsidiary, IDLC Securities Limited. The Company commenced operations in the year 2006 and is engaged in providing investors access to capital markets through state-of-the-art infrastructure in terms of online trading platform and terminals. IDLC Securities operates 59 terminals spread across ten offices in Bangladesh.

key competence drivers► Cutting-edge technology: The Company provides its customers cutting edge technology in terms of robust trading

platforms, redundancies and high uptime.► Customer services: The Company provides wide ranging capital market access through phone trades (placing trades via the

telephone), i-trade (trading through the Internet), m-trade (via mobile phones through a particular application) and SMS trade (placing a trade via a pre-formatted SMS sent from the customer’s registered mobile number). These provide our customers the freedom and convenience to trade as per their requirements.

► Strong brand equity: The Company enjoys brand equity through a strong lineage (association with IDLC). This ensures high levels of customer trust and loyalty; the result was that it achieved 20% growth in customer base last year.

Blueprint for the futureIDLC Securities intends to invest in shoring up its back-office infrastructure towards strengthening its administrative speed and reinforcing customer service. It also expects to continue to invest in customer education programs, enabling them to make informed decisions.

“The year 2013 was a challenging one for the Company on account of depressed primary markets leading to sluggish secondary markets as well. However, on account of our strong customer focused orientation, we continued to gather momentum with our customer education and awareness programs while at the same time providing them with the advantage of anytime, anywhere trade, leveraging various formats – telephone, Internet and mobile phone. The result of our achievements can be encapsulated in the fact that we were able to grow our customer base by 20% to 10,756 in 2013, a remarkable achievement. Over the next one-two years, we intend to fortify our human resources, strengthening productivity, deploying new technology for trading and our operating culture all with the intent of solidifying our customer services.”

Mr. Md. Saifuddin Managing Director, IDLC Securities Limited

A detailed performance and activity report of brokerage services has been given on page no. 216 of this annual report.

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► Segment status within IDLC Group: Wholly-owned subsidiary► Portfolio: Investment banking (IPO, RPO, rights issue, corporate advisory, underwriting, pre-IPO placement and merger and acquisitions), research and discretionary portfolio management and margin loan, among others► Issues (IPO, RPO, rights) managed over the past fi years (2009-13): 7► Market status: A leading merchant banker in Bangladesh► Workforce strength: 40 members

Subsidiary review – IDLC Investments Limited

Merchant banking

OverviewIDLC’s investment banking operations commenced in the year 1999 with the primary activity being participating in underwriting shares. The Company managed its first Initial Public Offer (IPO) as the issue manager of Bank Asia Limited in the year 2003, mobilising a cumulative Taka 200 million. Another landmark was achieved in the capital market history of Bangladesh when IDLC Investments managed the first-ever IPO under the book-building method in the year 2010 for RAK Ceramics (Bangladesh) Limited, raising a cumulative Taka 1,656 million with a share subscription of over 10 times.

key competence drivers► Showpiece portfolio: As of 31 December 2013, the Company managed seven IPOs as issue manager and has helped raise

Taka 5,200 million; some of companies for which we have managed IPOs/ bonds include Bank Asia Limited, Berger Paints Bangladesh Limited, Marico Bangladesh Limited, RAK Ceramics (Bangladesh) Limited, GBB Power Limited, Paramount Textile Limited and Matin Spinning Mills Limited.

► Diversiied services: We have managed multiple private placements and capital raising activities. Until 31 December 2013, we provided underwriting services to 48 issuers and have also managed the repeat public offering of subordinated convertible bond of BRAC Bank Limited and the rights offer of The City Bank Limited. We have also completed private placement (equity) of Taka 1,205 million for Energypac Power Generation Limited and for Tosrifa Industries Limited amounting to Taka 60 million. We have also provided corporate advisory services to Runner Automobiles Limited to help raise capital through foreign direct investment (FDI) to the tune of Taka 1,050 million.

► Healthy mobilisation: By managing IPO, RPO, rights, placement and capital raising activities, we have helped raise Taka 14,336 million for our clientele.

► Innovative approach: In September 2013, we conducted a road show for the IPO of Energypac Power Generation Limited under the book-building method (a process in which a company attempts to determine the price to offer its security based on demand from institutional investors), which is an innovative funds mobilisation approach in Bangladesh.

Our bouquet of servicesIDLC Investments is also engaged in several other services, including:

ResearchOur buy-side research team is focused on facilitating investment decisions of our proprietary and discretionary portfolio investments. Our qualified team covers a universe of 50 scrips and provides investment recommendations on stocks enabling fund managers to generate attractive returns. During 2013, our recommended scrips posted a +47.83% return, as against the blue chip index, DS30, that returned +0.41%.

Discretionary portfolio management (DPM)With a pool of experienced fund managers, we manage funds on behalf of investors, formulating appropriate investment strategies, constructing and rebalancing portfolios, monitoring market perspectives on an ongoing basis, actively managing risks and optimally diversifying portfolios. Our experienced DPM team has been outperforming the DSE market index for the past five years. Under the banner of MAXCAP, Profit and Loss Sharing Scheme, Capital Protected Scheme and Portfolio Advisory Services, the division is focused on protecting customers and generating market-leading returns suited to individual risk-return profiles.

Margin loan: Cap InvestIDLC Investments is widely considered as one of the top portfolio managers in the Bangladesh capital markets through the margin lending product, Cap Invest. Over the last three years, we have significantly reduced our margin loans to reduce customer risk profiles in volatile markets and also align with the regulatory framework of capital adequacy, single obligor limit and capital market exposure limits of the parent Company.


Risk management

In 2013, risk management was our biggest focus area. We brought in a number of changes to manage client as well as lender-centric risks.► Introducing mark-to-market (MTM);► Rebalancing portfolios with defensive and growth scrips;► Lowering margin loan exposure.

Blueprint for the futureCurrently, we are working as the issue manager for several proposed IPOs including a corporate advisory agreement with Ananta Apparels Limited, a 100% export-oriented RMG (readymade garments) manufacturer.

Something interesting!In 2013, out of the total of 10 IPOs approved by the BSEC, only IDLC Investments-managed issues received a premium over their face value . Additionally, IDLC-managed IPOs were placed at the top two slots in terms of funds raised, totaling Taka 2,101 million; eight other companies got approvals for raising Taka 1,865 million during the year under review.

Mr. Md. MoniruzzamanManaging Director,IDLC Investments Limited

“The year 2013 was a landmark one at IDLC Investments Limited. During the year, the Bangladesh Securities & Exchange Commission (BSEC) approved a total of 10 IPOs and two companies were able to offer shares at a premium, a good achievement in challenging economic and primary market conditions. We acted as the issue manager for both the companies, which included Paramount Textiles Limited engaged in manufacturing woven fabric for export-oriented industries and Matin Spinning Mills Limited, manufacturers of combed and carded yarn from raw cotton. We raised Taka 840 million and Taka 1,261 million, respectively, for the two companies through the IPO route.

Besides, we also initiated a unique programme under the Negative Equity Recovery Campaign, under which we offered fi incentives including waivers and reductions to encourage customers to continue to invest in equity and equity-oriented products despite sluggish market conditions. Several customers responded positively to this campaign.

Over 2014, we will be actively engaged in consolidating our activities through strengthening our risk fi restructuring operations at our branches and reinvigorating our teams for enhancing productivity and performance. We will strengthen our operational platforms with a view to capitalise on the mid and long-term prospects of the economic performance of our country.”

A detailed performance and activity report of merchant banking has been given on page no. 223 of this annual report.

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Our Business Model ReviewIDLC Finance Limited is Bangladesh’s premier financial services Group in the NBFI (non-banking financial institutions) space, providing a wide range of deposit solutions on the one hand and offering a diverse set of loans and advances to a vast number of SMEs (small and medium enterprises) corporate and consumers on the other.

We typically operate in segments of the financial market where we can strategically differentiate ourselves and leverage our core competencies to counter competitive pressures from peers in the NBFI space as well as from traditional financial institutions including banks.

Though each of our businesses is distinct with specialised and focused teams, they collaborate on a number of key attributes,

The Group’s simple products, business activities and Balance Sheet ensure we maintain the conidence of clients,lenders and depositors, shareholders and other stakeholders. Our local knowledge and experience allow us to provide a differentiated and valuable service toour clients and is a core part of our riskmanagement approach.

which not only help us drive synergies but also enable us to offer differentiated yet integrated propositions to our clients. This underpins our long track record of financial performance through economic cycles – while our deposits have grown at a compounded annual growth rate (CAGR) of 31% over 2009-13,our loan book has reported a CAGR of 20% over the same

period. The key features of our business model are highlighted

below:

Simple► Our business activities are organised and straightforward.

We offer deposit and loan solutions that cater to a wide range of needs and requirements; we provide capital market and merchant banking services; we also trade securities and provide advice and investment management solutions to our customers.

► We offer simple products with straightforward, transparent and unambiguous pricing.

► Our Balance Sheet is transparent and we do not invest in complex securities products or derivatives. As a prudent measure, we provided for provisioning of Taka 1,044 million in 2013 with a provisioning coverage ratio on our gross loans of 3% (consolidated level).

Expert► Our employees are specialists in their fields with strong

knowledge of their products and markets with an exceptional ability to establish strong bonds with our customers.

► Our experienced local teams cover every corner of the Bangladesh market and have delegated decision-making authority (enabling capture of opportunities with speed and surety) with strong central oversight.

► Our remuneration structures aim to balance long and short-term performance to keep our teams motivated and energised and ensure a culture of high productivity.

Prudent► We possess a prudent, diversified and relatively low-cost

funding base and we borrow longer than we lend, helping us create strong asset-liability positions.

► We have a strong well-capitalised position with cash and cash equivalents of Taka 7,855.92 million as on 31 December 2013.

► We apply prudent, judicious, consistent and well-documented framework to our lending and our loan portfolio is predominantly secured and diverse.

Relationships► We offer high service levels and build long-term

relationships with clients, customers and intermediaries.

► Our local presence and knowledge allows us to understand and meet diverse client needs, creating mutually-beneficial relationships grounded on trust and transparency.

► Our financial strength and prudent, consistent model ensure we can continue serving our clients at all stages of the economic cycle.

Our businesses in brief:

NBFI operations► Provides specialist lending to small and medium-sized

businesses and individuals across a diverse range of asset classes and also offers deposit taking services.

► We provide a wide bouquet of loan solutions directly to SMEs across even the remotest corners of Bangladesh and specialise in catering to their niche requirements.

► Our loan book is predominantly secured and is diverse across asset classes and sectors.


► Through high service levels and flexible solutions we build long-term relationships with clients and generate high levels of repeat business (almost 64% of our deposit book comprise of repeat customers).

► Our strong collection teams continually focus on maturity cycles across our portfolio and facilitate in ensuring timely cash inflows, helping take effective control of our NPLs (non- performing loans).

Securities – IDLC Securities Limited► Provides retail trading services of securities to a wide

base of 10,597 customers.

► Possesses robust infrastructure that ensures high uptime.

► We have a strong research desk that covers 159 companies across a broad range of sectors.

► We also provide an integrated offering for private clients combining financial planning advice and professional investment management.

Investments – IDLC Investments Limited► Offers a broad range of capital market solutions including

IPOs/ rights issues and follow-on public offers.

► Enjoys the status of lead underwriters for some of the largest IPOs in Bangladesh (including those for Bank Asia Limited, Berger Paints Bangladesh Limited, Marico Bangladesh Limited, RAK Ceramics (Bangladesh) Limited, GBB Power Limited, Paramount Textile Limited and Matin Spinning Mills Limited).

► Has been involved with seven IPOs over our tenure, being responsible for mopping-up a cumulative Taka 5,200 million.

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Documents

Idlc Ar 2013