How DBH managed to keep its NPLs so low

While a number of banks and non-bank financial institutions (NBFIs) are struggling to rein in their non-performing loans (NPL), DBH Finance PLC has continued to maintain the lowest NPL to loan ratio in the industry for years. 

Commencing operations in 1996, the housing finance company's classified loans reached Tk 38 crore in 2022 with an NPL ratio of 0.86 per cent whereas the aggregate NPL ratio of all the NBFIs was 24.61 per cent till September 2022.

For the banking sector, the average NPL ratio was 9.36 per cent at the end of September, according to the central bank data.

The housing company is the lone financial institution in the country whose NPL to outstanding loan ratio never touched 1 per cent.

The company did not reschedule any loans in 2022 and in its 25 years of operations, it wrote off just Tk 94 lakh of loans, said Nasimul Baten, its managing director and CEO.

This is by far the best figure in the bank and financial institution industry, excluding the new ones, he said.

The choice is the factor – whether to go for aggressive expansion and take high risks or to be conservative and focus on risk management. The company chooses the latter, he said.

As the company lent for only housing, its spread is low as well as margin. In this perspective, if it sees a high amount of NPL, the company will lose out, so its focus is mainly on risk management, Baten clarified.

When it lends, it focuses mainly on the repayment capability of the borrower instead of keeping a high mortgage. "This policy has worked well to keep the NPL low," he said.

As the NBFI is dealing with a single product, that is house loans, it is comparatively bearing a low risk and this is also a reason, he added.

Efficient client selection helped the company as other NBFIs' NPL on the same product is at least 3 per cent to 7 per cent, he said.

The DBH achieved a AAA rating for 17 consecutive years since 2005, according to its annual report for 2022.

The AAA is the highest rating referring to a company's excellent quality, offering the highest safety for timely servicing of financial obligations and carrying minimum risk.

A special loan recovery team of the company played a contributory role to reach that figure with their all-out effort, said the top DBH official.

Intense follow-up and proper monitoring through frequent customer visits are the keys to an efficient and effective recovery system, he added.

At the end of December 31, 2022, the loans and advances portfolio of the DBH stood at Tk 4,454 crore.

The DBH has historically maintained a low NPL ratio of approximately 0.50 per cent without any significant write-offs.

At the end of last year, the DBH's NPL ratio witnessed an increase from 0.63 per cent in the preceding year to 0.86 per cent.

During the year, the DBH provided Tk 10.38 billion-worth home loans to over 3,000 households, which is marginally higher when compared to that of the previous year.

The listed NBFI's profits dropped to Tk 101 crore in 2022 which was Tk 104 crore in the previous year.

As the interest rate against deposits rose, the lending rate did not go up at the same pace and the economy is facing the fallouts of a war and the pandemic, so it impacted the profits of the company, said the MD of DBH Finance.

Default loans in the banking sector increased to 16.8 per cent year-on-year to Tk 120,656 crore last year.