monthly business review - september 2013

COVER STORYJute Industry of Bangladesh: Opportunities on the HorizonJute, once dubbed as the golden fi ber of Bangladesh, has lost much of its luster as the most prospective export earners of the country; yet, Bangladesh still holds the position of the top jute producing country in the world. Archaic technology, inappropriate market strategy, lack of fresh investment and so on plagued the growth of this sector allowing other countries to better position themselves and capture market share. However, in a world, where green alternatives are the next big thing, the jute industry still has the capacity to hog the limelight again by being a major contributor of country’s export basket.

ANALYSIS MONITORBangladesh Bank unveils Financial Stability Report 2012Bangladesh Bank’s 2012 edition of Financial Stability Report sheds light on diff erent aspects of country’s fi nancial landscape and analyzes the health of local banks and fi nancial institutions. It also explains several policy initiatives that BB has taken to ensure implementation of international best practices in the local market.

IDLC NEWSIDLC SME Accredits its Heroes

IDLC organized SME Sales Conference 2013 to recognize and reward the sterling performance of its SME team.

Volume 9 Issue 09 September 2013

IDLC MONTHLY BUSINESS REVIEW

in this issue 2

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c o n t e n t s

ECONOMY RMG drives output growth 13Forex Reserves Hit USD 16 bn 14Infl ation edges down, close to govt. target 15

TRADE Due to Falling Investment, Banks’ ADR drops below 74% 16Onion Import Loans get Cheaper 16Shrimp Exporters Shine as Disease Hurts Competitors 17

BUSINESSOnline shopping transactions in the mainstream 18The Next Big Thing ‒ 3G 18Shariah Banking Fights Recession Better 19

REGULATORY NEWSBB Takes Steps to Introduce OnlineTransaction through Cards 20Banks asked to open accounts for garment workers 20

MARKET ROUNDUPMajor Currency Roundup 21Commodity Market Roundup 22

INTERNATIONALMicrosoft to Buy Nokia’s Devices Unit 23British car industry fi ring on all cylinders 23

MONTH IN REARVIEWBusiness Firm Specifi c 25

CAPITAL MARKET REVIEW Market Commentary 28

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- Avijith Barua & Md. Sayeed

JUTE INDUSTRY OF BANGLADESH OPPORTUNITIES ON THE HORIZON

One of the most aff ordable fi bers in the world and most commonly known as the golden fi ber, jute is only second to cotton in terms of usage, global consumption, production, and availability. Made up of long, soft, shiny vegetable fi ber that can be spun into rough, strong threads, jute fi bers have been mainly used to make burlap, Hessian and gunny ‒ all diff erent types of cloth. Comprehensively, it

is one of the most versatile natural fi bers that have been used as raw materials for packaging, textiles, non-textile, construction, and agricultural sectors. Beyond its historical usages, jute also represents alternative in this world of fast-depleting resources in that it is largely bio-degradable and, hence, environment-friendly. The highest density of this plant can be found in the Bengal Delta Plain in the Ganges Delta, most of which falls in the territory of Bangladesh. Thus, it is not surprising that jute is one of the few sectors where Bangladesh is a global leader both in terms of production and export volume. However, this dominance is largely unrefl ected in the trials and tribulations of the jute industry in Bangladesh, which has experienced a bumpy ride over the last 50 years.

For centuries, jute has been an integral part of the culture of Bengal, in the entire South-west of Bangladesh and some portions of West Bengal. During the British Raj in the 19th and early 20th centuries, much of the raw jute fi ber of Bengal was exported to the United Kingdom, where it was then processed in mills concentrated in Dundee. Initially, due to its texture, it could only be processed by hand until it was discovered in Dundee that by using whale oil, it could be treated by machine. The industry boomed (“jute weaver” was a recognized trade occupation in the 1901 UK census), but this trade had largely ceased by about 1970 due to the appearance of synthetic fi bers.

The jute products’ manufacturing sector is one of the oldest traditional manufacturing sectors of Bangladesh. The industry really emerged in the 1950s while the growth engine kicked up another gear during the 1960s and 1970s, where the jute industry occupied a large share of the manufacturing sector in national income and total manufacturing employment levels. Exports of jute and jute goods were the two most important sources of foreign exchange of the then East Pakistan during the 1960s. However, both share and importance of jute and jute goods in manufacturing, export and overall foreign exchange earnings, and the Gross Domestic Product

(GDP) have gradually declined over time. As of May 2013, the jute industry accounted for a little less than 1% of the country’s export basket. Considering that this composition was 3.9% only 6 years ago and 89.9% in 1973, it all points to a gradual downward slide in the signifi cance of the raw jute sector vis-à-vis other sectors. Many have cited the ascendancy of the export-oriented readymade garments (RMG) as a major reason. In spite of reduced signifi cance, however, Bangladesh remains the global market leader in the supply of raw jute.

Incidence in Bangladesh

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Output Levels

Historically, the production trend of jute in the country can be broadly categorized into 4 time eras.

First phase (1950-1970) Second phase (1972-1981) Third phase (1982-1990) Fourth phase (1991-onward)

During these four phases, jute manufacturing sector had experienced various changes in policies, and also in the pattern of utilization of jute and jute goods. In the pre-independence period, jute mills were owned by a small number of private entrepreneurs. During this phase, average hessian production was 155,586 metric ton (MT) per year, of which 87% was exported; the comparable fi gures for sacking were 267,614 MT and 78% respectively. Production reached its peak in 1969, with an output of 0.574 mn MT. Due to the struggle for independence in 1971, operations of jute mills was seriously hampered. Consequently, production declined in 1971 and 1972 but rebounded healthily afterward. In the second phase (1972-1981), government decided to nationalize the jute manufacturing sector, and took control of all the private sector jute mills. During the 1970s, average level of production of hessian was about 165,000 MT, of which 94% was exported, while comparable fi gures for sacking were 225,460 MT and 86% respectively. Growth in the production of jute goods between 1960 and 1980 can be attributed to the growth in production of hessian, sacking and carpet backing cloth (CBC) products.

Periodic Trend of Jute Goods Production, Periodic Average(in Metric ton)

Period Hessian Sacking CBC Yarn/Twine

Upto 1970 155,586 (86.9)

267,614 (78.2)

23,929 (96.7)

0 (0.0)

1972-82 165,033 (93.7)

225,458 (86.3)

635,78 (95.5)

19,53 (73.3)

1981-91 219,048 (94.8)

270,556 (83.7)

80,415 (97.0)

61,090 (69.1)

1992-05 87,968 (99.5)

196,839 (71.7)

39,777 (89.7)

163,830 (90.8)

Production of yarn/twine accounted for a small share of total production during the 1970s. During the 1980s (third phase), the then-government decided to de-nationalize a number of jute mills in line with the initiative of economic liberalization. A mixed trend is observed in the production of jute goods during this phase, which reached its peak in 1990 with a production of 0.596 mn MT. Production of yarn gradually increased in the 1980s. Most importantly, production of hessian and sacking two major traditional products gradually declined, especially since the late 1980s. Production of CBC declined as well. In the fourth phase (1990-onward), following the suggestions of the World Bank, government started to denationalize a number of public sector jute mills which inadvertently led to the closing of other peripheral jute mills as well. However, production of jute goods did not signifi cantly raise even after the adoption of various policy measures. Indeed, production of traditional products such as hessian, sacking and CBC has continued to decline with the exception of growth in the production of yarn and twine. Yarn/twine now accounts for the major portion of jute goods; and over time, its

production has also been on a steady rise. During 2006, Bangladesh’s share in the global production of jute goods was approximately 18%.

Both public and private sector jute mills sell their products either in the domestic market or in the international market. Bangladesh is the leading exporter of jute goods in the world and her share in the global market is gradually increasingwhich accounted for 60% of the global exports in 2006. If export of raw jute is taken into account, total export reaches more than 75%. Over the last decade, between FY2000-01 and FY2009-10, export growth of raw jute and jute goods were 13.3% and 6.4% respectively. This reemergence of the jute sector as an important export commodity reinforces the importance of focusing on the sector. It is interesting to note that during the fi nancial crisis year of FY2008-09, export of raw jute and jute goods suff ered signifi cantly and posted negative growth rates of -10.5% and -15.4% respectively. However, in FY2009-10 both the items were able to regain positive and high growth rates, and attained 32.5% and 100.6% growth rates respectively. For FY2010-11, export target for raw jute and jute goods had been set at USD 255.2 mn and USD 860.2 mn, which were 30% and 59.3% higher than the actual export in FY2009-10.

According to Bangladesh Jute Association (BJA), Bangladesh exported about 2.67 mn bales of jute goods in FY2007-08 while India stood at 1.6 mn tones in that year. Cumulatively, Bangladesh and India currently meet more than 90% of the global export demand for jute and jute goods; to compare, this share was 79% in 1970. As of 2012, Bangladesh alone makes up 95.27% of global yarn exports and 90.99% of global raw jute exports alone.

The jute sector of Bangladesh has experienced important changes since the 1990s. Export volume of raw jute was below 0.3 mn tonnes during late 1980s and continued to fall till 1994. Export trend saw

Source: BJMC, BJMA & BJSA.

Source: FAO.

Source: FAO.

Share of Jute Export Items

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some turnaround since then, but again experienced a trough during 2001 (severe than the previous deep of 1994). 2004 onwards export of raw jute and jute goods have continued to post an increasing trend. It is important to note here that export volume of jute goods was signifi cantly higher than raw jute throughout any time period.

Another characteristic of the jute sector is that the base of exportable jute items has continued to remain rather shallow and undiversifi ed. Bangladesh’s export basket is concentrated in only about eight products other than the raw jute item.

Composition of Jute manufacturers

A total of 72 jute mills were operated by the public sector in 1982, immediately before the initiative of denationalization. Since 1982-83, government started to denationalize the public sector jute mills out of 72 public sector jute mills, the government denationalized 34 jute mills between 1982 and 1985. Out of these 34 privatized jute mills, 6 were composite, 21 were conventional and 7 were CBC jute mills. A total of another 22 jute mills were privatized during the last two decades. Besides, a number of new jute mills (mostly of spinning type) were established under the private sector initiative. Currently a total of 129 jute mills are in operation, of which 18 mills operated under the public sector and the remaining 111 mills operated under the private sector. Of the 111 private mills, 61 mills were owned by the BJMA members while the remaining 50 mills were owned by the BJSA members.

A total of 25,792 looms were in operation in the 72 jute mills during 1981-82. In other words, average number of looms in a jute mill was 358. The number of operable looms increased to 26,033 by 1991-92, as a number of new mills was established during this period. In 2006-07, there were 22,944 looms in 129 mills, an average of 178 operable looms in a mill. It shows that though the number of installed looms did not change by a signifi cant quantity during the decade of 1981-1991, operable looms declined by almost half on the average. It implies that capacity utilization of the mills has substantially declined over time, from as high as 103% during 1982-83 to 50% in 2005-06 in BJMC mills and 94% to 19% in mills owned by the BJMA. It is important to note here that capacity utilization had substantially declined in cases of hessian, sacking and CBC mills in mid 1990s, especially in the private sector jute mills. Capacity utilization in yarn/twine mills is found to be relatively better when compared against other mills.

On the average, there were 403 looms in operation in a BJMC mill, which was more than double the number that were in operation in

a private sector jute mill. Large scale BJMC mills are operated with 745 looms. Average market value of machineries in a BJMC mill in 2007 was BDT 5.47 bn, while that of a BJMA mill was less than half the amount at BDT 1.693 bn.

BJSA mills usually had relatively less number of machineries, mainly because operation of these mills ended in the mid-stage of the production chain (i.e. in the spinning stage).Hence, these mills used relatively lower number of workers compared to other mills. Nature of operation in a spinning mill is not signifi cantly diff erent from composite mills where hessian, sacking and CBC are produced. However, in order to ensure quality of output, use of raw materials and some other applied techniques are diff erent in those composite mills.

A majority of the public and private sector jute mills are operating with machines that were installed during the 1960s and 1970s. Most of the mills established in the 1980s, 1990s and after 2000 have used machineries which were used earlier by BJMC and BJMA mills. A number of factories established after 2005 used machineries that were used in the Adamjee Jute Mills. This indicates that machineries which are not being used for various reasons in public and private sector jute mills can be easily made operational with a minimum cost for repairing. A large amount of investment is not required to serve this purpose. Some of the jute mills have started to use new machineries (but in a very small way) in order to enhance productivity and to produce acceptable output which meets the quality standards.

Financial position of the Jute Mills

A report by World Bank presented a portrait of Bangladeshi Jute mills where it was quite evident that most of the fi rms were profi table before the Bangladesh’s Independence in 1971. However, the scenario changed dramatically during the post-war era as most of the jute mills face fi nancial losses except few private fi rms.

Most of the jute mills have been experiencing poor fi nancial conditions since the inception of the country. According to the World Bank (1986), jute mills were profi tably operated by the pre-independence regime, when fi nancial profi t per unit of manufacturing hessian product was BDT 4,977; however, when considering the other economic costs such as subsidy and fi scal incentives, overall economic profi t can be considered to be negative (-BDT 1,545). In the following years, both fi nancial and economic profi ts of jute mills have continued to decrease. According to the BJMA, private jute mills suff ered a loss of BDT 7,420 for manufacturing one MT of hessian in 1988, which marginally declined to BDT 6,640 during 1996-97. Similarly, BJMC mills had a negative profi t of BDT 5,184 from manufacturing of one MT of hessian product in 1988, while the loss further increased to reach BDT 11,075 during 1994-95.

In order to compensate losses, the government provided various kinds of support to jute mills. Between 1985 and 1988, the then government compensated losses incurred by the mills against diff erence in the exchange rate between Bangladesh and India in the form of ‘XPB’ (Export Bonus). From 1989 to 1991, government paid ‘cash subsidy’ to all mills against their losses. Under the World Bank programme (Jute Sector Adjustment Credit or JSAC), government

Source: BJMA.

Capacity Utilization of Machines

5


compensated the mills through export loss fi nance for BJMA mills between 1992 and 1995 and up to 1995-96 for BJMC mills. The loss of fi nance to BJMC mills ranged between 31% and 67%, or at an average of 50%; on the contrary for the BJMA mills this was 16% during 1992-93 and 20% between 1993 and 1995. Of note is that, when the mills were denationalized in 1982 some were given back to their former management, and some given to new management. In both these cases all the previous loans and liabilities were also transferred. Those debts and liabilities, according to private entrepreneurs, had come into surface because of ineffi cient management during the nationalized regime. However, a part of those liabilities also originated even before that period, in the 1960s.

Nevertheless, in pursuit of knowing the present fi nancial condition of Jute Mills, the report studied 20 sample fi rms. To minimize the sampling error, as the sample size is considerably small, this report attempted to classify 3 asset classes to dig out the present fi nancial positions of the fi rms. Furthermore, it tried to focus on very basic fi nancials ratios, e.g. Net Profi t Margin & Debt-Equity Ratio.

Description Sample Size

Avg. D/E

Standard Deviation (SD) of D/E

Net Profi t Margin (NPM)

SD of NPM

Class A (Asset Size>BDT 700 mln) 4 3.05 2.16 3.52% 2.52%

Class B (700 mln>Asset Size>BDT 400 mln) 10 8.47 5.33 1.92% 1.01%

Class C (Asset Size <BDT 400 mln) 6 0.58 0.38 8.56% 2.87%

From the above table, it is apparent that companies whose Asset size are more than BDT 400 mn are usually tend to be highly leveraged. In eff ect, these companies face very low Net profi t margin due to high Operating & Financial Leverage. Moreover, recent sluggish export growth amid Middle-East crisis & devaluation of Indian rupees ignite the situation more seriously for the highly levered fi rms. On the other hand, fi rms whose assets sizes are below BDT 400 mln faces considerably low Debt-equity ratio, in eff ect these fi rms face relatively high Net Profi t Margin.

Retrospectively, from the above study, it can be concluded that highly leveraged fi rms are not profi table from economic point of view as 100yds/Bags sells at BDT 7,488 at FOB value. In light of this, highly leveraged fi rms make net profi t of BDT 188.50 on average. However, discarding the direct government benefi ts in the form of export subsidy, there will be an accounting loss of BDT 561.20. Therefore, in such case, the economic profi t of producing such items is economic losses in the form of welfare losses to the economy.

The above stated analysis signifi es that high leverage is a chronic problem of local Jute Mills. According to industry insiders, most of the fi rms take high debt on their equity position and eventually divert the fund to support their sister concerns in other industries. As a result of such, fi rms are unable to earn enough profi t margins, as funds are invested elsewhere rather than building up its existing structure or capital machineries. Most of the fi rms are relaying on export subsidy to cover up their high operating leverage. In the

absence of such govt. incentives, those highly leveraged could have been in big trouble.

Industry Competitiveness

Revealed Comparative Advantage (RCA)

As the name suggests, RCA is used to recognize a condition, when an open economy allows a particular country to gain from increasing specialization in activities where it has strong comparative advantage (opportunity cost for producing a good is relatively low). Therefore, it indicates the relative export performance situation of a country and industry, defi ned as a country’s share of world exports of an item divided by its share of total world exports. If RCA value of a product is more than 1, the product is considered to be having comparative advantage in the global market (Leung and Cai 2005).

DescriptionRCA Bangladesh RCA India

2012 2009 2012 2009

Jute and other textile bast fi bres, raw or retted 617.58 648.7 2.99 2.6

Carpets and textile fl oor coverings 0.1149 0.1 10.44 14.2

Sacks and bags, for packaging of goods, of jute or of other textile 253.58 239.9 27.25 18

Footwear 0.0554 0.1 0.0343 0.1

Yarn of jute or textile 646.66 688.9 1.75 2.7Data Source: Trade Map Database.

Bangladesh is enjoying comparative advantage in all major jute exporting products except Carpets than India, which is considered as one of the major competitors of Bangladesh in export market. However, the matter of concern is that Bangladesh’s comparative advantage is declined in Raw Jute, Jute Yarn & Footwear, where the fi rst two products are major jute exporting items from Bangladesh.

Moreover, Bangladesh is holding a very strong presence in the Raw Jute and Jute Yarn items as it is holding more than 90% of total world’s export market. In addition, in manufacturing Jute Sacks, it is holding second position, however the total market share relative to India’s market share is low (India is holding number one position in the Jute sack export market). Nevertheless, Carpet manufacturing and Jute Shoe industry can be a trigging Industry, as both of the products possess high total export market relative to Raw Jute, Jute

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Yarn and Jute Sacks. Bangladesh has great potential to succeed in these industries.

Product% of world's total export market by Bangladesh

Position in world Export Mkt.

Total Exp. Mkt.

(in USD mln)

Jute and other textile bast fi bres, raw or retted

90.99% 1 209,200

Carpets and textile fl oor coverings 0.02% 58 1,624,087

Sacks and bags, for packaging of goods, of jute or of other textile

37.36% 2 375,444

Footwear 0.01% 64 6,878,353

Yarn of jute or textile 95.27% 1 228,310

Product Segment Insight

Item

Exported growth in value between 2008-2012 (%, p.a.)

Exported growth in quantity between 2008-2012 (%, p.a.)

Exported growth in value between 2011-2012 (%, p.a.)

Jute and other textile bast fi bres, raw or retted

11 5 -26

Sacks&bags, for packg of goods,of jute or of other textile bast fi bres

15 6 35

Carpets and other textile fl oor coverings, nes

18 - -24

Footwear, nes 20 - 319

Yarn of jute or of other textile bast fi bres, single

30 23 7

Raw jute and carpets product segments each saw negative growth of over -20% in export value for the 2011-12 period. On the other hand, footwear products saw a sizeable appreciation in export value, growing by 319% during the same period.

Looking at the value-over-quantity export growth, we see that all three products ‒ raw jute, jute sacks & bags and yarn ‒ exhibited very low ratios for the 2008-2012 period.

For raw jute, India imports over 90% of Bangladeshi exports and thus has monopoly power over price determination.

In the case of jute sacks, India again is the largest importer, standing at 40%. The tariff s imposed on Bangladeshi jute sacks have depressed the multiplier eff ects on export by value growth against gains made in export volume growth.

As for yarn jute, Bangladesh faces an average of 4% in tariff on 38% of its total export value from the countries of India, China and Egypt. This has lead to only 30% export value growth against volume growth of 23%.

Price Competitiveness

Technological development and other factors contributed to the advantage enjoyed by synthetic fi bers, especially the price competitiveness. Polypropylene is the single most important synthetic substitute for jute. In the contrary, raw jute prices are subject to extreme instability and seasonal fl uctuations. High competition prevails in the market with Jute fi ber products and other related alternative products, particularly polypropylene. Although, the price of raw jute is almost half of the price of propylene, jute sack price usually tends to be more than twice as expensive as polypropylene sacks. This price diff erence aff ects the competitiveness of jute sacks.

On the other hand, Carpet weaving is also severely aff ected due to such price diff erential with synthetics. Due to the widespread availability, prices of Polypropylene fell quickly compared to jute, as a result of which, during the early 1970s, jute textile packaging lost much of its market share to synthetics. During FY1984-85, jute prices increased abruptly due to some unfavorable weather conditions in major producing countries, this created shortage of supplies in the international market. Accordingly, this shortage of supply resulted in a rise in prices, which provided the opportunity to Synthetic fi bers to penetrate into the international market, mostly in the developed countries; and as the Jute products lost its market, it failed to regain its market share due to high cost and supply constraints.

(f.o.b. prices in BDT/tonne) 2004 2006 2008 2010 2012 2013

(June)

Propylene-Polymer 679 1048 1304 1084 1832 1345

Raw Jute (Tossa Quality) 319 409 520 536 538 689

Source: Food and Agriculture Organization (FAO).

International Trade Overview (Various Trade Barriers)

Tariff Measures

Tariff barriers faced by Bangladesh are varied across country to country. Bangladesh faces highest tariff rate for raw jute in Singapore, Colombia and Vietnam with 10 %, and Brazil with 8% among its exporting countries. However, very high rate prevails in Kenya and Iran about 74% and 50% respectively for raw jute. Nevertheless, it faces zero duty in UK, EU, Japan & Australia for all of the Jute items Under the MFN (Most Favored Nation) status.

In terms of exporting Jute Yarn, Bangladesh faces zero tariff s with Turkey, which accounts for about 47% of total export of Bangladesh. Other than that highest tariff regimes for Jute yarn includes Brazil, Bolivia & Algeria, ranges from 7.1% to 15%.

Another potential jute products, Jute Shoe faces zero tariff from France, Belgium & Singapore where three of these countries account for about 70% of total export, where the highest tariff rate is faced by South Africa which is accounted for 5% of export market of Jute Shoe. Moreover, in terms of Carpets, Bangladesh faces Zero tariff to its major exporting nations, e.g. Australia & France due to MFN status.

Source: Trade Map Database.

Source: Trade Map Database.

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North America

USA is the largest importer of jute in North America. In USA, Bangladesh is benefi tted from zero MFN tariff s on raw jute, yarn, woven fabric, ropes, carpets, sacks and bags. In addition, Bangladesh does not have any GSP facility for its Jute products. However, prior to the recent ban on GSP facility by USA, Bangladesh enjoyed GSP facility on Footwear, where the tariff rate for footwear exporting is 8.15%, currently which is under zero MFN tariff regime. Nevertheless, Bangladesh’s export share of Jute Footwear in USA market is close to zero.

European Union

Bangladesh is enjoying the GSP facility provided by the EU under its Everything But Arms (EBA) scheme from January 2001. Moreover, the same gets ZERO MFN duty in raw Jute and Yarn. The EU-GSP treatment is subject to fulfi llment of the relevant Rules of Origin (RoO). According to export data of 2012, the EU export market is about 35% of total export of Raw Jute & Jute products.

South-Asia

India and Pakistan are two major markets for Bangladesh’s Jute items in South Asia. India is the largest importer of Raw Jute from Bangladesh, where Bangladesh faces zero tariff s according to SAFTA agreement. In addition, Pakistan, which is another potential market for Bangladesh, imposes zero tariff s on Raw Jute Import from Bangladesh. In case of other items, such as - Jute Sacks, Bangladesh faces 4% tariff to its major market India, which holds about 49% of Jute Sacks export of Bangladesh.

Non-Trade Barriers (NTB)

Yarn and Twine

Bangladesh faces various non-trade barriers, such as - TBT (packaging requirement, labeling requirement, etc.), SPS (sanitary and phyto-sanitary), customs and administrative procedures, import licensing requirement on export of jute yarn and twine. These barriers work as a hindrance to export growth due to additional formalities, time and cost.

Jute Sacks and Woven Fabrics

Some countries have some set of rules for importing jute sacks. India, the largest Jute Sacks Importer from Bangladesh, issued a rule in 2010 by which labeling of a country of origin for Jute bags is mandatory for export. Moreover, it was mandated that it should be machine stitched on four sides; in eff ect the same raises the manufacturing cost for the exporters. Exports to ASEAN (Association of Southeast Asian Nations) countries also face some. Exporters to these countries need to undertake testing of products, and have to submit certifi cate during the trading process. This causes extra time and costs.

Policy Implications

Present Scenario

Currently, Jute goods are drawing great interest in the world due to its product features as an environment-friendly, bio-degradable one. Moreover, everyone in the world is discouraging artifi cial fi bers.

Furthermore, the government of Bangladesh is trying to shift their focus on Jute Industry as one of the most promising sectors. In line with this, successive policies have also been taken. Export Policy of 2009-12 has identifi ed Jute sector as special development sector and stated about placing in facilities in the form of low cost debt, cheap air fare for carrying goods, facilities for technological up-gradation and initiatives for attracting FDI in this sector. Moreover, the new rules to enforce a compulsory use of jute sacks to pack food grains and other items will certainly help the jute industry during slump in prices due to reduced demand from India, which is the major importer of Jute Sacks from Bangladesh. Although, it will have other micro-economic implications by the way of surge in the price of rice or other grains, it will certainly help farmers and farms to grow in the short-run.

In addition, Industrial Policy 2010 has also cited reform measures to reactivate the closed jute industries. As a nominated thrust sector, jute industries will have the privilege to avail special incentives and fi nancial benefi ts such astax exemption, and will be excluded from double taxation. From FY2008-09, jute industries have been incorporated in the list of industries enjoying tax holidays.

Recommended Strategies

Support for the SMEs

SMEs, which are involved with manufacturing activities, should be patronized more vigorously by the way of fi nancial and technical support. In India, International Trade Centre (ITC) runs various engagement programs with designers, market specialists, jute mills and SMEs to promote marketability of jute products. In Bangladesh, currently we rarely fi nd such engagement programs. Besides, the fi nancial support in the form of low cost debt, which is reportedly 7% is very hard to obtain and moreover, the tenure of such loans are very short-term in nature. In eff ect, such fund is usually helpful for endorsing working capital requirements.

Nevertheless, for further development in the Jute Sector, it is very important to develop infrastructure. To fuel up such development, fi nancial assistance in the form of soft loan is imperative, which can take the form of long-term loan with low interest rates. Additionally, longer period of grace period will be benefi cial for the rewarded fi rms, as they will have the option to capitalize the interest that will certainly help to match their asset and liability position.

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Removal of Trade BarriersTariff barriers and Non-Tariff barriers are deterrent to trade growth of Bangladesh. To address some of these issues, Bangladesh will simply need to enhance its domestic capability. Moreover, it should continue to pursue various multilateral and bilateral negotiations for the withdrawal of these barriers. In addition, various eff orts should be taken to resolve any dispute through platforms, such as- WTO, Regional Trading Agreements (RTAs) and other platforms.

Appropriate Market Development Strategies

Appropriate market development strategies are imperative to long-term growth of Jute industry. However, this crucial issue remains unaddressed for a long period of time. In such case, local market development can be an eff ective strategy. However, the government should take necessary steps to control prices in the local market as export subsidy provided by the same will eventually raises the price level in the local market of jute products. Local market development can bring in various important aspects, such as- strengthening of market size and accessing global market by advantage of economies of scale and product development.

Product Name Potential Market** Trade Barriers

Raw Jute Egypt (33%), El Salvador (37%), Malaysia (53%) NTB

Carpets France (1171% growth in export value) NTB

Jute Sacks & Bags

Thailand (235%), Mozambique (345%), South Africa (124%)

7.5% & 10% respectively in Mozambique &South Africa

Footwear South Africa (261%), Thailand (108%), France

South Africa (24.4%) tariff

Jute Yarn Hong Kong (223%), China (124%), Egypt (56%) China (3%), Egypt (5%)

** Parenthesis represents export trade growth in respective countries in volume from 2008-2012. Data Source: ITC calculations based on UN COMTRADE statistics (Trade Map Database).

Market development eff orts, which did not obtain the required consideration in the past, should be given owing precedence. Many countries legislate the mandatory use of natural fi bers, which is a looming opportunity for Bangladesh; however, opportunities emitting from this have been wasted due to the lack of appropriate product development strategies. Development of new products could have been a good strategy to combat such situation. Market promotional activities and development activities need to be commenced by the Government of Bangladesh (GoB) to disseminate and highlight the advantages of Jute. Moreover, potential export market should be identifi ed and long-term strategy should be formulated in line with this. The following table shows the sources of potential market for Bangladesh. The same shows the export growth in the respective countries in the last 5 years in terms of quantity taking into account of positive export growth in value as it entails stable price negotiation with these countries. While, in the case of other major importers such as India, it is getting diffi cult to negotiate price of products, which ultimately reduces the trade growth in value in the last 5 years.

A Micro-Economic Perspective

Other than the various macro-economic factors that hinges export growth of Jute products, it is very prospective that Jute products are gaining its popularity in the developed countries. A recent study shows that price Elasticity of Jute products is only 0.06, which entails consumers are not concerned regarding any price appreciation of Jute products. Therefore, it is also very positive news for the Jute Industry as well from the long-run perspective.

Jute, once known as the golden fi bre of Bangladesh, has recently lost some of its lustre. A concoction of incorrect policy selection & implementation, lack of industrial oversight and tendency to focus on Bangladesh’s existing trump card ‒ namely the RMG sector ‒ has culminated that the jute industry becoming an afterthought in the country’s export basket, stagnating at only 0.9% total cumulative exports in May 2013. Peculiarly, beyond all odds, Bangladesh has retained its historic number one position in global raw jute production; however the gap between the top two spots have never been narrower as India has emerged as a serious contender in the global jute market in recent years. Unlike Bangladesh, India is not content with the status-quo and has deployed a host of policy and infrastructural reforms and initiatives to catch up. The message for Bangladesh is very clear ‒ shape up or move aside. So far, the trade subsidies bestowed on the jute sector are only a short-term solution ‒ they serve to buff er jute mills from global competition while at the same making jute products domestically pricier. Fortunately, the intrinsic strengths of the Bangladeshi jute sector can be built upon. To prosper, Bangladesh needs to adopt a long-term outlook. It can do this through a variety of ways ‒ it can encourage SMEs and work with them through a variety of investment tools (as well as providing debt and equity instruments to help struggling jute mills sustain and eventually expand); it can rescind protectionist policies and allow the jute industry to build true resiliency from global competition and it can encourage local consumption through public policy, further strengthening the base for foreign consumption. Furthermore, to remain competitive, the jute industry must diversify into jute products and discontinue its infatuation with raw jute, all the while exploring new avenues for export.

Also, jute represents a “green” alternative ‒ compared to polypropylene, its closest substitute, jute products require 10 times less energy consumption for both manufacturing and transport, and does not possess harmful manufacturing side-eff ects such as acid-rain and carcinogenics-release. As we move towards a world of depleted fossil fuels and ecological imbalance, demand for environment-friendly products will not only increase exponentially, but skyrocket. Since the turn of the 20th century, Bangladesh has been gifted with a goldmine for green alternatives in the form of the jute industry. All it now needs to do is safeguard it, and ensure that the walls don’t cave in.

(The writers are working as analysts in the Credit Risk Management department of IDLC Finance Ltd. and can be reached at [email protected] [email protected])

9


ANALYSIS MONITOR

A larger expansion in import expenditure compared with the increase in export earnings caused the widening of the trade defi cit. But in spite of this, a substantial surplus was reported in the overall balance of payments for CY 12.

As at December 31, 2012, the Gross foreign reserves were USD 12.18 bn. This, according to the central bank, is suffi cient to pay for the import payments of almost fi ve months. At the end of June 2013, the forex reserve reached USD 15.3 bn.

There was noticeable growth in the balance sheet size of the banking sector. The credit fi gures to the private sector also increased in CY 12.

Bangladesh Bank unveils Financial Stability Report 2012

According to the Financial Stability Report 2012 published by the central bank, Bangladesh economy showed signifi cant amount of growth in 2012. In the FY 20111-2012, the country achieved a real GDP growth of 6.3%, improvement in the banking sector caused by development of infrastructure and domestic demand being the main causes of such remarkable growth.

Bangladesh Real GDP Growth

Imports covered by reserves

Banking sector asset structure: end-DecemberTrends of trade, current account and overall balances

Source: Bangladesh Bank. Source: Compilation (Aggregate balance sheet of banking industry) : FSD, BB.

Source: Bangladesh Bank.


10


In comparison to the last year, investments in the government securities by the banks increased, showing a high government borrowing from the scheduled banks. There was a decrease in the money at call which is expressed as a percentage of total assets, by the end of Dec 12 compared to the last year. This indicated a rise in the availability of liquid funds of banks in order to meet immediate requirements.CY 12 also experienced a downgrading of assets. This was caused by examination of asset quality of banks by Bangladesh Bank (BB) before fi nalizing bank account, fi nancial crimes in the banking system and increase in frequency of loan examination by the central bank. The banking sector persisted to indicate high dependence on term deposits in CY 12. Signifying a comprehensive safety net for small depositors, the deposit insurance coverage rose considerably.

Because of creation of additional provision due to new stricter loan loss provision regulation adopted by BB in 2012, the profi tability indicators of the Banking sector- Return on Equity (ROE) and Return on Assets (ROA) fell in the same year. Although the Capital Adequacy Ratio (CAR) in the banking sector fell, but nearly all the banks were able to maintain the minimum required CAR of 10.00%. Still, the country stands way behind other South Asian countries like India, Sri Lanka and Pakistan in terms of development of the banking sector. Although the CAR is minimum 10% under Basel-II Accord/Framework, the CAR is signifi cantly higher for most of the Islamic banks.

International comparison of capital adequacy indicators

CountriesCAR (%)

2009 2010 2011 2012

India 14.0* 14.6* 13.5*** 14.3*

Pakistan 14.0 14.0 14.1** NA

Sri Lanka 16.1 14.9 14.5*** NA

Bangladesh 11.7 9.3 11.4 10.5Source: RBI, SBP, CBSL, BB.

*as of end March, **as of end June, ***as of end September, NA-not available.

The weighted average interest spread of the banking industry persisted to drop till it fell to 4.99%. While the banks maintained a surplus of Statutory Liquidity Reserve (SLR) and the average SLR was

almost one fourth of the total demand and time deposit, the overall Advance to Deposit Ratio (ADR) reached a stable state by the end of December 2012.

Signifying generally better quality of assets in their portfolios, the ROA of the Islamic banking industry was higher than that of the overall banking industry. Islamic banking industry also experienced considerably better ROE than overall banking industry in CY 12. This was due to better investment management by these banks and greater future access to investor’s capital.

As the ratio of classifi ed loans and leases to total loans and leases recorded slight increase, Non- Banking Financial Institutions (NBFIs) experienced a drop in asset quality in CY 12. Due to a decline in non-

Source: Data: DOS, BB; Computation: FSD, BB.

Source: Data: DOS, BB, Compilation (Aggregate P/L account of banking industry): FSD, BB.

Source: Data: DOS, BB, Compilation (Aggregate P/L account of banking industry): FSD, BB.

Sector return on assets (ROA): CY 2011-12

Banking Sector return on Equity (ROE): CY 2011-12

Selected income ratios of Islamic banks & the banking sector

Capital adequacy ratio of the banking sector

11


interest income and fee income from capital market activities, this sector also experienced a drop in profi t ability.

Positivity in the capital market was brought by stable growth in the issued capital (including IPO), stable price-earnings ratio and improved Herfi ndal-Hirchman Index. On the other hand, the market turnover, market capitalization and general price index persisted to decline.

There was signifi cant development in the fi nancial infrastructure in CY 12. This was led by launching of a National Payment Switch by the central bank in order to create a common platform for bank cards, internet banking and mobile based Bangladesh; introduction of Electronic Fund Transfer (EFT) to facilitate the banks in making high value payments instantly using less materials and manpower; introduction of Mobile Financial Services (MFS); issuance of guidelines on uniform accounting procedures for Repo transactions of government securities by BB; introduction of online trading of govt. securities aiming to create a vibrant secondary market; creation of a Financial Integrity and Customer Services Department at BB; introduction of a ‘Large Loan Monitoring Software’ in its premises for closer monitoring of large loans; procurement of ‘goAML’ software by BB aiming to combat international terrorist fi nancing and money laundering; and initiation of an “elevator reporting” system titled ‘Quick Review Report (QRR)’ on a half yearly basis with a view to analyzing banks’ overall condition, fi nancial disclosure requirements and fi nancial position.

Source: Department of Financial Institutions & Markets, BB.

Source: Monthly Economic Trends, Issue: December, 2012.

Source:Department of Financial Institutions & Markets, BB.

Source: Recent Market Information, www.dsebd.org

Source: Data: PSD, BB; Compilation: FSD, BB.Source: Recent Market Information, www.dsebd.org

NBFIs’ classifi ed loans and leases trend

DSE General Index Movement (CY 2012)

Market Capitalization Ratio (FY 2003-04 to FY 2011-12)

NBFIs’ borrowings, deposits & capital trend

Turnover to Market Capitalization Ratio (Dec. 2004- Dec. 2012)

Automated Cheque Clearing Operations

12


Three Challenges to Slash Infl ation

The Bangladesh Bank has identifi ed three challenges to reduce infl ation as predicted in the target for the current FY 2013-2014, shown in the national budget as 7.0%. According to the latest quarterly report released on the 23rd of September, both the old and new infl ation base-data indicate that infl ation remains a major challenge for Bangladesh. The challenges, as identifi ed by Bangladesh Bank, are given below:

The likely wage increase in the public and private sectors, which will create aggregate demand pressures.

Possible supply side disruptions, particularly aff ecting food infl ation, due to nationwide strikes and weather-related factors aff ecting agricultural yields.

The recent rise in Indian infl ation, which could be transmitted to Bangladesh as shown by historical long-term trends.

The central bank has estimated the Gross Domestic Product (GDP) growth at 6.03% in FY’13, lower than 6.23% growth of FY’12 and the 6.2% average for the previous decade. The reason was ascribed to the slower growth in agriculture and services

sector. Looking ahead to FY’14, the BB’s current forecast is that output growth is unlikely to deviate signifi cantly from the last ten-year average of 6.2%. This is based on current and projected trends of a number of variables including global growth, domestic and foreign investment, exports, imports, remittances, etc. The forecasts would be updated by the central bank regularly.Average infl ation, using 1995/96 base-year, has been declining steadily over the past fi fteen months, from a peak of 10.96% in February 2012 to 7.70% in June 2013, according to Bangladesh Bureau of Statistics (BBS). This decline was driven by a steady fall in point-to-point food and non-food infl ation until October 2012, when food infl ation bottomed out at 5.57%; since then, food infl ation had begun to rise and in June 2013 it was

8.53%. Non-food infl ation fell from a peak of 13.96% in March 2012 to 6.76% a year later, BBS data revealed. However, point-to-point non-food infl ation has increased to 6.99% in June 2013. However, point-to-point infl ation has increased to 6.99% in June 2013. Point-to-point infl ation data, using the 2005/06 base, broadly shows similar trend as the pattern using the 1995/96 base, although the absolute numbers diff er, the central bank said. Using the 2005/6 base, point-to-point food infl ation has risen from 1.75% in September 2012 to 8.26% in June 2013. Point-to-point nonfood infl ation is declining, having peaked in October 2012 at 11.28% to 7.75% in June 2013. The rise in food infl ation was also pushing up average infl ation, which bottomed out at 6.06% in January 2013 and rose to 6.78% in June 2013.

f fl f f

(2005/6 Base) Source: BBS.

13


ECONOMY

“Resilience becomes Bangladesh” - the favorite adage of domestic industrialists has been substantiated again, by the prolifi c output from the RMG sector. According to data from Export Promotion Bureau (EPB),

In comparison to August 2012, the fi gure of total export earnings was 3.18% higher this year.

Between July and August, knitwear exports raked in USD 2.1 bn, up by 17.19% from a year ago.

Woven garments fetched USD 2.05 bn, a 16.98% year-on-year rise.

Startlingly, the total exports of other products took a down-turn, dropping 33.42% to USD 2.01 bn in August from July. Export earnings in August were 20.85% below the target of USD 2.54 bn. Export portfolio of Bangladesh now stands even more reliant on the RMG sector.

According to the EPB, if the trend continues this way, Bangladesh RMG would successfully achieve this fi scal year’s export target of USD 30.5 bn. Prosperity of the RMG sector is to be credited to the EU market, where 52% of the country’s products are exported to; in addition, the sector is bolstered by the rise in the emergence of solid export destinations such as Japan, Russia, and South Africa. Furthermore, exports to SAARC and ASEAN countries are also on the rise.

Banks’ net profi t slumped by 40.6% to BDT 44.66 bn in 2012 due to stricter provisioning requirements against their default loans, according to Bangladesh Bank. The banks made a net profi t of BDT 75.20 bn in 2011.However, the banks’ operating profi t rose by 5.6% to BDT 197.30 bn in 2012 compared to a year ago.

Increased provisioning is expanding the capital base of the banks, which will brighten their image to their foreign counterparts, according to Bangladesh Bank.

The net investment in the national savings certifi cates and bonds increased by 184.90% in the fi rst two months (July-August) of this fi scal year 2013-14 compared with that in the same period of the FY 2012-13 because of a dull investment situation in the productive sector and a lower rate on the banks’ savings products. According to the Directorate of National Savings’ data released on the 24th

of September, the net investment in the savings instruments was BDT 13.1677 bn in the fi rst two months of the FY14 while it was BDT 4.6218 bn in the same period of the FY13. In July-August FY2013-14, the net investment in the savings instruments also surpassed the net investment of BDT 7.7284 bn made in the previous fi scal year.

Rate of InterestFive-year Bangladesh savings instruments 13.19%

Three-monthly profi t-bearing savings certifi cates 12.59%

Pensioners’ savings instruments 13.19%Family savings certifi cates 13.45%

RMG drives output growth

Banks’ net profi ts slump 40%

Jul-Aug Investment in Savings Tools Surpasses FY13 Figure

Export GrowthYEAR-ON-YEAR/IN %

Export PerformanceJuly-August 2013-2014

Banking Sector’s Net Profi ts(in crores of BDT.)

Source: BB.

Source: Directorate of National Savings.

Source: EPB.

14


Foreign currency reserves have reached USD 16 bn, although imports have started rising at the start of the current fi scal year.

Imports rose by 7.78% year-on-year in July, backed by food grains and capital machinery, according to data from Bangladesh Bank. In July, imports of rice and wheat shot up by 118% year-on-year and capital machinery by 21% and raw materials by 10.58%, according to the LC settlement statistics. In the last fi scal year, imports fell by 4.36% due to a sluggish investment situation, compared to the previous year.

Bangladesh’s net imports last fi scal year went negative by 4.36% for the fi rst time since fi scal 2001-02, to take the country’s current account balance to the surplus. According to data from the central bank:

In fi scal 2012-13, some USD 33.97 bn worth of goods and services were imported, down from previous year’s USD 35.52 bn.

Bankers and analysts attributed the negative growth to less food grain, capital machinery and luxury item imports as well as price benefi ts on petroleum imports.

The country imported USD 31 mn worth of rice in fi scal 2012-13, down

from USD 288 mn a year ago and USD 830 mn in fi scal 2010-11. The letters of credit (LC) settled for capital machinery imports stood at USD 2.12 bn, which is down by nearly 16% from a year ago.

Meanwhile, the petrol bill, too, dropped on the back of favorable exchange rate. Petroleum imports last fi scal year stood at USD 4.39 bn, down from FY 2011-12’s USD 4.48 bn.

Bangladesh’s major import items include petroleum products, chemicals, cotton, yarn, textiles and articles, capital machineries and edible oil.

The decline in imports has sent the country’s current account balance to

USD 2.5 bn in the surplus for FY2012-13, which were USD 447 mn and USD 1.68 bn in the negative in fi scal 2011-12 and 2010-11 respectively.

Forex Reserves Hit USD 16 bn

Net imports go negative after 11 years

The country’s commercial banks have begun reducing their lending rates thanks to the excess liquidity in the money market and Bangladesh Bank’s (BB) move to rationalize the interest rate spread (the diff erence between the average lending and deposit rates).

The lending rates are being reduced to help increase the banks’ loans and advances while bringing the spread down to within the desired level. Having a huge amount of idle money accumulated due to poor demand for loans, the commercial banks have proceeded on a heavy cut on the deposit rates, pushing up the spread above the desired level (set by BB) of 5%.

According to Association of Bankers Bangladesh (ABB), the spread increased mainly due to lower deposit rates that came down due to a slump in banks’ business, whereas, the lending rates remained unchanged. The spread had been climbing since the beginning of this year. Barring a few exceptions, the average spread is not so alarming.

Bangladesh Bank (BB) data shows that the average spread was 4.91% in April, 2011 and that this has increased gradually to stand at 5.23% in July 2013. The average annual lending rate of the private banks stood at 14.36% and the deposit rate at 9.13% as of July down from the previous month’s rates of 14.44% and 9.1% respectively.

The interbank call money rate remained stable at a range of between 7% and 7.5%, showing signs of adequate liquidity in the money market. The call money rate came down to its

lowest at 7% in last couple of weeks, and went as high as 8% in the last year. It, however, rose to 9% for just over one week ahead of Eid-ul Fitre. According to Bangladesh Bank, banks should cut the lending rate now as the deposit rate has already been reduced.

The ratio of NPLs to the total loans for the banking sector, in both gross and net terms, increased at the end of third quarter of FY13 compared to the second quarter, as per BB data. Gross NPLs went up from 10% at the end of second quarter to 11.9% at the end of the third quarter. The overall banking industry NPL was 2.6% higher at the end of the third quarter of FY13 than the last fi ve years’ average of 9.3%.

High Interest Rate Spread Persists Despite Down Trend in Banks’ Lending Rate

Spread of Leading & Deposit Rate

Growth rate of Bangladesh’s Imports (in %)



15


Infl ation (p-to-p) declined by 0.46 percentage points from 7.85% in July 2013 to reach 7.39% in August 2013. The infl ation fi gures this time were arrived at following the new base year of 2005-06, which replaced 1995-96 as the base year. Both food and non-food infl ation dropped in August. Food infl ation decreased to 8.09% in August from 8.14% in the previous month and non-food infl ation decrease to 6.35% from 7.40%.

Though the point-to-point infl ation decreased, average infl ation increased from 6.99% in July to 7.19% in August 2013. Average infl ation in the food sub-sector increased by 0.49 percentage point to 6.20% in August than that in July this year, because of high food price that prevailed in the preceding months compared to their matching period a year ago. Average non-food infl ation, however, declined to 8.71% in August from 8.96% of July 2013.

The export-import balance (Balance of Trade) recorded a lower defi cit of USD 129 mn during the fi rst month of FY2013-14, compared to the defi cit of USD 476 mn in the same period of FY2012-13. But the large infl ow of workers’ remittances in July 2013 was at a USD 1232 mn lead to a current account surplus of USD 754 mn on July 2013, against a lower surplus of USD 284 mn during the same period of the last fi scal.

However, the Financial Account saw a defi cit of USD 444 mn, Nevertheless, Bangladesh’s positive trend in its overall Balance of Payments (BoP) continued from July 2012 with the BoP registering a surplus of USD 369 mn for July FY 2013-14 against a surplus of USD 553 mn during July FY2012-13.

Rate of Infl ation remains stable

Balance of Payment continues positive trend



16


Remittance infl ow to Bangladesh from top six countries has been on a gradual decline, according to Bangladesh Bank statistics. The six countries Saudi Arabia, United Arab Emirates, Kuwait, the US, the UK and Malaysia

accounted for USD 11.69 bn or 80.87% of Bangladesh’s total remittance infl ow of USD 14.46 bn in fi scal 2012-13. Contribution of these countries was 82.63%, 84.20% and 83.76% in fi scal 2011-12, 2010-11 and 2009-10 respectively. The Bangladeshi diaspora in Saudi Arabia sent the highest amount of foreign currencies, worth nearly USD 3.83 bn in 2012-13, followed by the UAE at USD 2.83 bn and the US at USD 1.86 bn, central bank data shows. Remittance infl ow from the UAE, Oman, Bahrain, Kuwait, Libya, the US, Malaysia, Singapore, Australia and South Korea increased in 2012-13 compared to that of a year ago. However, remittances from Qatar, the UK, Germany, Japan, Italy and Hong Kong witnessed a negative growth in 2012-13 compared to 2011-12.

TRADE

Due to Falling Investment, Banks’ ADR drops below 74%

Onion Import Loans get Cheaper

The credit or advance-deposit ratio in the banking sector declined below 74% in August as credit demand in the private sector continued to drop in the current fi scal year 2012-13 due to dull business situation in the country amid political unrest.

Eight banks and 10 Islamic wings of the conventional banks posted negative credit growth as of August 1, 2013 on year-on-year basis. According to the latest BB data, the overall ADR in the banking sector dropped to 73.34% as of August 1, 2013 from 76.59% as of December 31, 2012.

The ADR was 80.33% as of June 7, 2012. As per BB rules, the conventional commercial banks are not allowed to invest more than 85% of their deposits while Islamic banks and Islamic wings of the conventional commercial banks can invest up to 90% of their deposits.

A number of banks had high ADR in 2011 and in the fi rst half of 2012, but now the situation has changed as the credit demand from the private sector continued to decrease due to the ongoing political unrest. Banks had also taken a cautious policy in sanctioning fresh loan as the banking industry recently faced a number of scams. The ADR in the banking sector along with its credit growth will decline further in the coming months if the ongoing political instability continues.

The ADR ratio in the state-owned commercial banks dropped to 61.72% as of August 1, 2013 from 68.95% as of December 31, 2012, that of the local private commercial banks to 78.06% from 79.65% and that of the Islamic banks and Islamic wings of the traditional bank to 83.10% from 86.89%.

Onion importers will get loans at an interest not more than 12% as Bangladesh Bank impose the lending rate limit on September 23. The rate takes immediate eff ect and will continue until the year end. The central bank also relaxed the loan-margin ratio to make the import cheaper and said the banks are free to set the margin at minimum level based on relationship with their clients. It relaxed the terms of fi nancing onion imports to facilitate adequate supply of the essential commodity in the market, said a circular issued to the commercial banks. It said price of the commodity recently witnessed volatility in the local market due to high price in the international market. The commerce ministry earlier requested Bangladesh Bank to take steps to cut the interest rate to 10% and consider a relaxed margin ratio to help bringing down the prices ahead of Eid-ul-Azha and Durga Puja.

Remittance Infl ow in FY ‘12

Remittances from Top Six Countries on the Decline

81%19%

Top Six Countries

Others

Infl ow of RemittancesFrom Saudi Arab, UAE, Kuwait, USA, UKand Malaysia (in % of Total)


17


USD in mn

Item Jul-Sep12-13

Jul-Sep 11-12 Change

Knitwear 2,539.83 2,579.52 -2%

Woven RMG 2456.86 2234.56 10%

Frozen Food 263.27 300.43 -12%

Home Textile 198.77 183.75 8%

Leather 75.74 77.28 -2%

Chemical Products 24.56 41.94 -41%

Foot Wear 111.47 106.56 5%

Engineering Products 68.78 93.18 -26%

Agricultural Products 133.73 114.04 17%

Raw Jute 53.08 65.54 -19%

Others 365.36 366.93 0%

Total 6291.45 6163.73 2%Source: Export Performance for July FY2013-14; Export Promotion

Bureau, Bangladesh Bank.

Shrimp Exporters Shine as Disease Hurts Competitors Shrimp exports from Bangladesh surged 42% to USD 109 mn in July-August as malaise has brought down production in other exporting countriesThailand, China and Vietnam. The disease, known as Early Mortality Syndrome (EMS), has aff ected white shrimp or Vannamei production in the competitor countries, creating a shortage in supply and raising the prices. Bangladesh Frozen Foods Exporters Association hopes to exceed the export target of Bangladesh for the fi scal year as demand and current prices are likely to sustain until June 2014. Shrimp processors had earlier targeted USD 477 mn in export earnings in fi scal 2013-14, which is 5% higher than the actual export fi gures of USD 454 mn in fi scal 2012-13, according to Export Promotion Bureau.

Category wise Export Import LC statistics USD in mn

Items July, 2013 July, 2012

FLCO SOLC OSTLC FLCO SOLC OSTLCCapital Machinery 255 239 3,040 157 197 2,315 Textile Fabrics (B/B & Others) 525 479 2,807 408 390 2,270 Rice and Wheat 192 143 551 62 65 184 Chemicals & Chem. Products 262 290 1,350 283 336 1,221 Petroleum & Petro Products 614 382 1,323 255 330 1,311 Edible Oil & Oil Seeds 90 149 756 178 90 808 Raw Cotton 160 208 1,009 139 193 880 Scrap Vessels 135 67 464 111 76 341 Pulses 19 42 233 31 25 161 Cotton Yarn 89 91 526 93 95 477 Paper and Paper Board 29 31 89 26 26 72 Synthetic Fibre & Yarn 45 50 271 42 36 239 Sugar and Salt 78 65 572 38 48 728 Others 27,435 24,545 5,334 28,536 27,629 5,255

Total 29,928 26,781 18,324 30,358 29,538 16,264

FLCO = Fresh LC Opening, SOLC = Settlement of LC, OSTLC=Outstanding LC.Source: Major Economic Indicators: Monthly Update, August 2013, Bangladesh Bank.

ShrimpExport(in mn.

Of $ Jul-Aug)Source: EPB.

18


BUSINESS

Online shopping transactions in the mainstream

The Next Big Thing – 3G

According to the Bangladesh Association of Software and Information Services (BASIS), the annual online sales amount to nearly BDT 200 mn in the country. Bangladesh Telecommunication Company Ltd (BTCL) states that the country currently has about 400,000 internet users. The regulatory body believes that the number would take a hike if -

Internet bandwidth prices were reduced. Traders engaged in extended publicity to make it more popular.

An approximate number of 40 e-stores are serving to the country’s online shoppers, supplying a variety of products including groceries, foods, cloths, home appliances, electronics, jewelleries, books, shoes, and so on. In Bangladesh, the local shoppers pay either on cash or through debit or credit cards or bKash service. The orders are placed over the phone or online, and an additional service charge is included based on the lead time requested by the customers. These stores are already receiving orders from Nepal, India and the UK, with the response far exceeding what they had anticipated. Currently, they are serving a niche market and would need more time to expand their business further overseas. Online shops and payment systems need to be 100% secured and approved by Bangladesh Bank for the companies to operate.

Four mobile phone companies Grameenphone, Banglalink, Robi and Airtel got the 3G license in the beginning of August for providing 3G cellular services. The mobile phone companies also got 4G and LTE licenses with the 3G license and they would be able to launch 4G services without any further formality. The four operators Grameenphone, Banglalink, Robi and Airtel bought 25 MHz spectrum on September 8 in the 3G spectrum auction from available 40 MHz by paying only USD 21 mn for each MHz whereas the opening base price was USD 20 mn per MHz. The government expected that it would net in revenue worth at least USD 800 mn from four licensees but it got only USD 525 mn as GP took 10MHz with USD 210 mn, Banglalink, Robi and Airtel took 5 MHz each with USD 105 mn.

According to the 3G guideline, the four companies have to deposit 60% of the auction winning price in Taka or equivalent US dollar within 30 working days from the auction result notifi cation and remaining 40% in 180 days. The operators will get the licenses for 15 years with an option to launch 4G and LTE services.

According to the BTRC’s roll-out plan the operators must have to launch the 3G service within six months from getting the license and reach out the service to all divisional headquarters within nine months. Currently, only Teletalk, state-run operator, off ers 3G service in selected regions of the country.

NBR Hosts Fourth Tax Fair Off ering people one-stop services such as assistance with fi ling of tax returns and tax payment either manually or electronically, the fourth weeklong tax fair ended on September 22, amid a rush of taxpayers, enabling the revenue authority to register its highest revenues from the showcase. The event fetched the National Board of Revenue (NBR) BDT 11.174 bn this year, up 34.46% from the previous year, thanks to its expansion throughout the country. This year, the show was held in all divisional cities, 54 district towns and three hilly districts. It has also beaten previous records of visitor turnout and tax returns submission.This fair enabled taxpayers to complete tax-related work without any hassle. One off ering which went down well with the visitors is the assistance with the online registration and re-registration of

taxpayer identifi cation numbers (TINs), launched in July to establish an electronic payment system. Some 74,356 existing TIN holders re-registered online to comply with NBR’s directive to complete electronic re-registration by December 31, 2013.Over the past several years, the collection of income or direct tax has been growing thanks to steady economic growth and rising income. Revenue authority’s motivational campaigns for tax payment and eff orts to curb tax evasion and increase tax net facilitated the growing income tax receipts, now the second biggest source of revenue after value-added tax. Income tax collection shot up by 28% year-on-year in July to BDT 18.37 bn, according to NBR. For fi scal 2013-14, the revenue authority aims to collect BDT 482.97 bn in income tax, 32% higher than last fi scal year’s receipts.

19


Shariah Banking Fights Recession Better

BD to import power from India

During the last global economic crisis, the Islamic banks and fi nanciers emerged successful compared to the conventional ones, which probably had encouraged expansion of such banking even in non-Muslim countries, according to Bangladesh Bank (BB). Islamic banks have been operating in the countries since the 1980s. Currently, there are eight Islamic banks that run wholly on Sharia Principles. Further, as many as 17 conventional banks including one foreign bank are running Islamic branches.

More conventional banks have requested for approval to become the wholly Shariah-based, which indicates robust customer demand in Bangladesh for Islamic fi nancial services. Barring one exception of a small sick Islamic bank in process of restructuring, the Islamic banks in Bangladesh generally have higher capital adequacy ratios and lower non-performing loan ratios than their conventional banking counterparts. Aggregate assets and deposits of Islamic banks in Bangladesh have nearly doubled in the last four years; by end 2012 aggregate assets and deposits both crossed trillion taka thresholds, comprising around a fi fth of total banking sector assets and liabilities. It is noteworthy how these banks already have signifi cant engagement in agricultural, SME and microfi nance, so far without any refi nance support like those available for conventional banks. BB has also put stress on the challenges which are coming hand in hand with the ongoing growth trends and the emerging new growth prospects.

The much-talked about power import from India began on trial basis on September 27, by adding 50 megawatts (MW) to the national grid. The 50 MW electricity was supplied around 10:45am to a sub-station of Power Grid Company of Bangladesh (PGCB) in Bheramara in Kushtia. The load was raised up to 175MW by 5:00pm when it was suspended for a detailed technical study on the both sides of the border. Initially 50 to 175 MW electricity will be imported and supplied to national grid every day till October 5, when it will be formally inaugurated by the leaders of both countries. After the inauguration, the transmission will be increased up to 250 MW, and 500 MW at the end of November. PGCB has set up the substation on 112 acres of

land at Gopinathpur in Bheramara with link to substation at Baharampur in West Bengal.The Bheramara substation is capable of both importing and exporting electricity from and to India.

A 125-kilometre transmission line has been constructed between Bheramara and Baharampur. Of this line, 40 km fell inside Bangladesh. A Memorandum of Understanding (MoU) was signed between the two countries in 2010 on import of a total of 500 MW power from India.

Half of this power will be coming from the Indian central government electricity quota and the rest from its open market. The total

amount of electricity, to be imported under a 35-year contract, is expected to improve the country’s power crisis situation now being tackled through costly but short-term rental power plants.

Tariff , along with Wheeling Charge for Imported Power

BDT 6 to BDT 6.35 per kilowatt-hour or unit

Tariff from Rental Power Plants

BDT 7.5 to BDT 22 per unit

Tariff from Large, Local Gas-fi red Power Plants

BDT 2.5 to BDT 4.8 per unit

20


Banks asked to open accounts for garment workers

BB resets limit on banks’ share credit

The central bank asked all scheduled banks to open bank accounts for apparel workers with an initial balance of BDT 100. The Green Banking and CSR Department of Bangladesh Bank (BB) issued a circular in this regard on the September 18. There will be no obligation of maintaining minimum balance, and banks cannot charge any fees for the services, according to the circular. Garment workers must show the copy of their national and employment identity cards to open their accounts. Banks can transact against these accounts on vouchers if they (banks) run short of cheque books, BB said. Respective banks have to submit reports on the update of these accounts to the banking regulator on a quarterly basis. Earlier, the BB helped farmers open bank accounts with BDT 10 only, and nearly 10 mn farmers have come under the banking services though many of the accounts remain unused.

Banks will be able to disburse no more than BDT 30 mn in share credit to any stock dealer as the central bank set the limit in line with a revised law. The loans will only be allowed for A- and B-category shares, Bangladesh Bank said in a notice. The credit amount may cover up to 70% of the last six months’ weighted average prices of A-category shares and 60% of B-category shares, but that must not cross

BDT 30 mn in any case. The previous limit was BDT 10 mn. The Banking Companies (Amendment) Act 2013, gazetted on July 22, empowers the central bank to set the credit limit time to time. However, the banks’ total exposure to the capital market would not cross 25% of their total regulatory capital. According to the Central Bank, the banks which have over-exposure to capital market

will have to reduce the exposure by July 21, 2016.

The banks will also have to regularly submit a central bank prescribed report on their investment exposure to the stock market within fi rst 10 days of a month, emphasizes Bangladesh Bank.

REGULATORY NEWSBB Takes Steps to Introduce Online Transaction through Cards The Bangladesh Bank asked scheduled banks to introduce two-step authentication and online alert systems for the use of credit and debit cards for online transactions by April 1 of next year. The BB issued a circular to the banks asking them to implement the new method of ‘additional authentication’ or two factor authentication for Card Not Present (CNP) transactions.

CNP is referred to a transaction a consumer carries out without presenting his/her credit or debit card. A consumer can make online payment for any purchase of product by using his/her credit or debit card’s number and password, without swiping the card through any machine. This type of transaction is usually used in the e-commerce.The BB circular said that the banks would introduce an ‘online alert’ system for the cardholders for CNP transactions of value of BDT 5,000 and above. The CNP transactions are considered very convenient for consumers as these allow them to make purchases using a personal computer or mobile phone device. Currently, clients of the banks use a fi xed password in CNP transactions.

In the current system, fraud risk is high as such type of fi xed password can be easily accessed by hackers.

In order to check fraudulence in the CNP transaction, the banks will issue a one-time password for every transaction to their clients so that their transaction process would remain safe and secured. Banks will send the one-time password to their clients through mobile numbers and emails. The transaction will be executed when a client will insert the one-time security code in the process.

The incidents of credit card fraudulence have recently increased in the country. So, the BB has made mandatory for banks to adopt policy required to tackle online fraudulence to protect consumers and fi nancial institutions.

Besides, the banks will have to provide online alert to clients when they make the CNP transaction amounting to BDT 5,000 and above. Banks will provide the online alert to their clients through emails and mobile numbers.

21


Exchange And Forward Rates (As on September 29, 2013)Major Currency Exchange Rates

Currency BC SellBDT

TT BuyBDT

USD 78.25 77.25EUR 106.35 102.3GBP 126.8 122.77AUD 76.51 71.64JPY 0.85 0.77CHF 88.44 83.91SEK 12.27 10.99

Major Currency Exchange Rates

Currency BC SellBDT

TT BuyBDT

CAD 79.59 74.58HKD 11.09 9.9SGD 63.8 60AED 21.48 20.86SAR 21.2 20.54DKK 14.18 12.82KWD 273.73 268.26

Exchange Rate of Some Currencies

Currency Currency Per USD

BDT per Currency

INR 62.65 1.24PKR 105.74 0.74LKR 132.03 0.59THB 31.38 2.48MYR 3.26 23.86

Source: Standard Chartered Bank.

MARKET ROUNDUP

September 2013

Money Market The Bangladesh interbank call money rate was around 6.75 ‒ 7.25% on September 30.

Foreign Exchange Market Local: The USD/BDT interbank rate remained stable on Monday. Trading volume was also fairly stable. The USD/BDT market remained liquid.

International: The euro fell broadly on September 30 as political tensions in Italy escalated, while investors shunned the dollar as a deadline to avert a government shutdown in Washington approached. The Swiss franc and the yen, which tend to benefi t in times of fi nancial uncertainty, rose. The euro was down 0.7% at JPY 131.82 having earlier fallen to a three-week low of JPY 131.385. The single currency fell 0.2% versus the franc at FF 1.2225, off a low of FF 1.2215; it’s weakest since early May. It was down 0.3% at USD 1.3488.

Strategists said the euro’s fall versus the dollar could be limited by month-end and quarter-end euro buying by Asian accounts and due to dollar weakness as a deadline to break a political impasse over funding and avert a federal government shutdown approached.

The dollar was fl at against a basket of currencies at 80.336. Latest weekly Commodity Futures Trading Commission data showed currency speculators had cut their bets in favour of the Dollar to the lowest net long in seven months. The dollar was down 0.4% at JPY 97.83, having hit a one-month low of JPY 97.53 earlier. The British pound hit a 9-month high of USD 1.6183 and 8-1/2 month high of 83.38 pence per euro. The Australian dollar was down 0.1% at USD 0.9300, having earlier dipped to a two-week trough of USD 0.9280 after data showed factory activity in its largest export market.

Currency Market Roundup

Financial Sector Prices The spread of lending and deposit rate in August 2013 slept to 5.02%.

The weighted average call money rate in the inter-bank market rose to 8.25% in August, 2013 because of high credit demand ahead of Eid festival.

Bangladesh Bank has changed repo and reverse repo rate at 7.25% and 5.25% respectively after a downward revision by 50 basis point eff ective from 01 February, 2013.

22


Food prices in August 2013 were 1.9% below its July value and 5.1% less than in August 2012. Last month’s decline, the fourth in a row, was driven by continued falls in the international prices of cereals and oils, as dairy, meat and sugar prices rose slightly.

Cereal prices were down 7.2% from July and 19% from August 2012. This steep decline follows an already sizeable drop in July, is consistent with expectations for strong growth in world cereal production this year and, especially, a sharp recovery in maize supplies. While prices of wheat and rice were down by 2 to 3%, the fall reached 14% in the case of maize in spite of some late-month gains on concerns over drought and heat stress conditions in the United States.

Prices of oils and fats fell 3.0% below the July value. This marked the third consecutive monthly decline. The slide in prices continued to be driven by palm oil, as ample inventories in Southeast Asia kept prices under pressure. Soy oil values fi rst eased on abundant export availabilities from Argentina and generally

good crop prospects for FY2013-14, only to regain strength when the United States lowered the forecast for its own forthcoming soy harvest.

Prices of dairy products appreciated by 1.2% in August 2013. Prices increased for the majority of all dairy products except butter, as export supplies remain limited in major trading countries. Furthermore, with milk production declining seasonally in the northern-hemisphere and the new production season only just starting in Oceania and South America, availabilities for the remainder of 2013 are uncertain. This has lent support to prices, as importers seek to cover commitments for coming months.

Costs of meat also saw an slight increase of 1.3%, refl ected mainly by stronger prices for swine meat. Conversely, poultry prices registered a fourth consecutive monthly decline, dropping by 1.3%, partly as a result of lower feed costs.

Sugar prices were up 1.1% in August 2013.

The small rebound in sugar prices after three months of consecutive declines was mostly due to estimates showing that Brazil, the world’s largest sugar producer and exporter, was using more sugarcane for ethanol production at the expense of sugar. Overall, sugar prices displayed large volatility during the month, amid uncertainties regarding the size of the anticipated production surplus in the major producing areas.

Commodity Market Roundup

Steady Growth of Lubricant Market Driven by Power Plants The lubricant market has been witnessing steady growth on the back of strong demand from automotive and industrial sectors. The market is now worth BDT 24 bn, which was BDT 12 bn fi ve years ago. Annual domestic consumption now stands at around 100,000 tonnes, with the market growing at almost 3% a year, which is on par with India but behind China. Lubricant consumption by the industrial sector, especially by power plants, has increased signifi cantly in the last 2-3 years. The automotive sector accounts for 70% of total lubricant consumption in Bangladesh and the industries the remaining 30%. Mobil is the market leader with its 30% share, followed by British Petroleum at 11%, French brand total at 5% and Shell, Castrol and Caltex with 2% each. Omera Fuels, a sister concern of MJL Bangladesh, has a 2% share as well. The remaining 46% share of the market is held by over 70 brands. Cement, steel and fertilizer industries also consume a good amount of lubricants.

Global food prices keep tumbling

International Commodity Prices Commodity Unit Price Sep 28 2013 (USD/unit) Price Aug 29 2013 (USD/unit) Change +/(-)Crude Oil Barrel 102.33 108.7 -5.86%Gold Ounce 1326.5 1407.75 -5.77%Silver Ounce 21.68 24.11 -10.08%Nickel Tonne 14001 14132.5 -0.93%Tin Tonne 23370 21575 8.32%Lead Tonne 2102.8 2200.4 -4.44%Aluminium Tonne 1834.2 1864.8 -1.64%Zinc Tonne 1909.7 1952.8 -2.21%Copper Tonne 7270.8 7252.5 0.25%

Source: LBMA; Worldal; WTRG.

Market share of Lubricant Brands (in %)

Source: MJL Bangladesh.

23


Markets

Index

Sept. 25th

% Change on year-on-year

One

Week

Dec 31st, 2012

In local currency In USD

United States (DJIA) 15,273.3 -2.6 16.6 16.6

United States (S&P 500) 1,692.8 -1.9 18.7 18.7

United States (NAScomp) 3,761.1 -0.6 24.6 24.6

Japan (Nikkei 225) 14,620.5 0.8 40.6 23.2

China (SSEA) 2,301.2 0.3 -3.1 -1.4

Britain (FTSE 100) 6,551.5 -0.1 11.1 9.8

Canada (S&P TSX) 12,836.7 -0.7 3.2 -0.2

Germany (DAX) 8,665.6 0.3 13.8 16.6

Hong Kong (Hang Seng) 23,209.6 0.4 2.4 2.4

India ( BSE) 19,856.2 -0.5 2.2 -10.2

Pakistan (KSE) 23,060.9 0.6 36.4 25

Singapore (STI) 3,208.6 0.5 1.3 -1.3

Source: The Economist.

International Market Movement

International Economic Forecast Year on year percentage change

GDP CPI

2012 2013 2014 2012 2013 2014

Global (PPP Weight)

3.20% 3.00% 3.70% 3.90% 4.00% 4.10%

Advanced Economies

1.20% 1.20% 2.20% 2.00% 1.40% 1.80%

Euro Zone -0.60% -0.20% 1.50% 2.50% 1.40% 1.50%Developing Economies

5.10% 4.70% 5.10% 5.90% 6.60% 6.30%

Forecast as of August 2013 1Aggregated using PPP weight Source: Wells Fargo Securities, LLC

INTERNATIONALMicrosoft to Buy Nokia’s Devices Unit for USD 7.2 bn

Twitter to go for IPO

British car industry fi ring on all cylinders

Microsoft Corp. is spending EUR 5.44 bn (USD 7.2 bn) to buy Nokia handset unit so it can gain ground on Apple Inc. and Google, in a smartphone market it let get away. Nokia’s devices and services unit, which accounted for half of the company’s 2012 revenue, along with 32,000 employees, will transfer to Microsoft. Nokia CEO Stephen Elop, 49, will return to Microsoft after a three-year stint running the Finnish manufacturer. The move stoked speculation he may be a successor to CEO Steve Ballmer, who said last month he’d retire within 12 months.

Microsoft is deepening a push into hardware as dwindling computer sales sap demand for the programs that made it the world’s largest software maker. Nokia shares jumped as much as 48% in Helsinki as the sale removes a money-losing handset business and lets it focus on higher-margin networking gear. Even combined, the companies have less than 4% of the smartphone market, leaving them far behind Apple and Google.

Twitter has submitted papers for the most hotly anticipated stock off ering in the tech sector since Facebook’s in 2012. The company has confi dentially submitted an S-1 to the SEC for a planned IPO. Twitter’s market value has been estimated around USD 10 bn based on early venture capital investments, but the initial public off ering (IPO) is likely to bring a higher amount. According to private company research fi rm PrivCo, Twitter’s IPO is expected to be conservatively priced at USD 15 bn, with about USD 500 mn in revenue. Twitter has become one of the fastest-growing and most infl uential social media services, used widely by celebrities, journalists, politicians and others.

Britain is accelerating away from its European competitors in the car-making sector with investment fl owing into the factories of Nissan and Jaguar Land Rover as Chinese and American demand drives sales. To note, Jaguar Land Rover has pumped GBP 1.5 bn (EUR 1.8 bn, USD 2.4 bn) into its plant in Solihull near Birmingham, creating 1,700 jobs and giving a welcome fi llip to industrial central England. In northeast England, Nissan has been granted permission to extend its already vast plant in Sunderland, securing jobs in an area where major employers are in short supply. Analysts at ETX Capital have credited the British government with reviving an industry that once looked close to extinction. The UK decided in early 2013 to inject GBP 500 mn into the auto sector, precipitated by signs that UK auto-making industry was fast becoming a dying sector as car factories produced high volume motors by low-skilled manufacturing. However, the UK government’s initiatives to kick-start manufacturing activity may result into transforming the country’s auto making industry into one of premium niche manufacturing.

24


Selected Economic & Financial Indicators % change on year-on-year

CountryGlobal domestic product Consumer prices

Unemployment rate, %

Current account balance Interest rates, % 10-year gov’t bonds, latestLatest qtr* 2013** latest 2013** rate, % % of GDP

2013**United States 1.6 2.5 1.6 1.5 1.5 7.3 -412.9 -2.7 2.62China 7.5 7 7.5 2.6 2.6 4.1 211.6 2 3.94Japan 1.2 3.8 1.8 0.7 0.1 3.8 51.5 1.2 0.68Britain 1.3 2.7 1.3 2.7 2.7 7.7 -96.7 -2.7 2.77Canada 1.4 1.7 1.7 1.1 1.4 7.1 -59.6 -3.1 2.58France 0.3 1.9 -0.1 0.9 1.1 11 -49.4 -2.1 2.36Germany 0.5 2.9 0.5 1.5 1.7 6.8 246.3 6.6 1.82Russia 1.2 0 2.2 6.5 6.4 5.2 47.9 2.5 7.6Hong Kong 3.3 3.2 2.9 4.5 4.1 3.3 5.8 2.4 2.18India 4.4 -2 5 9.5 9.6 9.9 -87.8 -3.9 8.79Singapore 3.8 15.5 2.3 2 2.4 2.1 49.9 18.3 2.35Brazil 3.3 6 2 6.1 6.4 5.6 -80.6 -3.4 11.6Mexico 1.5 -2.9 1.7 3.5 3.6 4.8 -22 -1.6 7.75*% change on previous quarter, annual rate. Source: The Economist.** The Economist poll or Economist Intelligent Unit estimate/forecast.

Global business barometerBusinesspeople have become more gloomy about future business conditions, according to the latest Economist/FT global business barometer, a quarterly survey of over 1,500 executives. Overall, the balance of those who think global business conditions will improve over those who think it will worsen fell from +5.2 percentage points in the second quarter of this year, to +2. Confi dence has deteriorated in all regions except Europe (though 83% there reckon the euro-area crisis is not over). Latin America and Asia had the sharpest falls, and sentiment is once again negative. North American bosses used to be fairly optimistic, but their sentiment has turned negative.

Insight Analysis

A developed nation is a prosperous nation.

At IDLC, we help you contribute to this process.

We are in the business of financing happiness.

25


MONTH IN REARVIEW

Business-fi rm Specifi c Accenture, a global management consulting, technology services and outsourcing company, has completed all the formalities to take over 51% stakes in Grameenphone’s IT wing GPIT. As of September 2013, the fi rm is responsible for GPIT’s management. Although Accenture has taken the charge of management from this month, there will be no major change within the board right now. Grameenphone would continue to hold the remaining 49% stake in GPIT.

Mastercard, an American multinational fi nancial services corporation, looks to strengthen its footprint in Bangladesh through a modern electronic payment system. According to Mastercard for South Asia, Bangladesh is a terrifi c market for the electronic payment industry. Mastercard is set to open its fi rst country offi ce in Bangladesh in November and wants to off er innovative payment services, spearheaded by the mobile phone. Bangladesh has around 1.2 mn credit cards and 1.7 mn debit cards, while mobile subscription is more than 100 mn.

According to Mastrcard for Asia, the convergence of mobile and card devices, therefore, is inevitable and the full-fl edged arrival of 3G services would accelerate the process.

Mobile operator Airtel Bangladesh will invest up to USD 50 mn in the next three years to roll out its 3G network. The operator has recently signed an agreement with Chinese telecom vendor Huawei to install 3G equipment. The company has already invested USD 125 mn for 3G spectrum purchase and to pay other relevant charges including VAT. According to Airtel, the telecom company has already covered 80% population and around 75% area of the country. Airtel has developed 3G network in around 15 countries, including India, Sri Lanka and some African countries.

Appollo Ispat Complex is bringing in an environment-friendly technology to produce lead- and acid-free corrugated iron sheet from next year. The non-oxidising furnace (NOF) technology of

Germany will also help increase the CI sheet maker’s effi ciency and reduce cost of production. The new technology, in addition to the existing continuous galvanising process, will be applied to an extension, construction of which is going on in the 17-acre factory area at Shimrail in Narayanganj. Once the new technology is introduced, hot roll (HR) coil the raw material for cold roll (CR) coil will be cleaned through heat, instead of caustic soda and acid. Appollo Ispat now imports HR coil, mainly from Japan, and transforms those into CR coil, the raw material for CI sheet. Appollo Ispat has recently got a go-ahead from the stockmarket regulator to raise BDT 22 bn by issuing 1.0 bn ordinary shares of BDT 10 each, in addition to BDT 12 as premium per share. From the IPO proceeds, they plan to spend around BDT 15.3 bn on loan repayment, BDT 6.0 bn for the NOF project and the rest to bear the IPO expenses.

Transcom Mobile Ltd has launched an e-store, an online marketplace through which consumers can now purchase Samsung smartphones. The devices will also be sold in installments through the online store, the fi rst ever initiative taken by Transcom, the distribution partner for Samsung mobiles. Anyone can purchase Samsung smartphones by local or international card such as Visa, Mastercard, DBBL Nexus card, DBBL Mobile Wallet, Q-cash and bKash Mobile Wallet through the e-store. The delivery for orders within Dhaka is free and takes three business days.

VLCC, an Indian wellness brand, is set to open its fi rst manufacturing plant in Bangladesh in a bid to grab the country’s growing beauty market. VLCC has already established a factoryits fi rst in South Asiaoutside India, at the BSCIC Industrial Area in Jamalpur with an investment of about BDT 6.1 bn. The company plans to manufacture skincare, hair-care and sun-protection products in the factory. At present, the country’s beauty market is said to be worth BDT 65.5 bn, which is almost three times its value in 2008.

26


IDLC SME Accredits its Heroes

IDLC Finance Holds Workshop on Anti-Money Laundering & Anti-Terrorism Regulations

IDLC NEWS

SME Sales Conference 2013 was held at the Celebration & Grand Summit Hall of Dhaka Regency Hotel on September 20, 2013 to recognize and reward the remarkable individual and collective performances of IDLC SME team. The sales conference was the platform where eff orts and attainments of the SME team were showcased, best of the best performers were awarded and success recipes of various teams were shared. Above and beyond, this was the time when all the colleagues of all the teams of SME got together under a single roof and celebrated the success that the team had achieved in the preceding year.

The CEO and Managing Director of IDLC Finance Limited, Mr. Selim R. F. Hussain was present at the ceremony as the Chief Guest and Mr. Zahid Ibne Hai ‒ General Manager and Head of SME along with the Management Committee members were among the special guests. The CEO & Managing Director, while recognizing the SME Team as a champion team of IDLC, underscored that this momentum of soaring performance be preserved and further accelerated. Great food and fun set the buoyant mood for this gala event that ended the show celebrating the Spirit of Togetherness and Passion.

IDLC Signs a MoU with Grameenphone on Vehicle Tracking System Services IDLC Finance Limited has recently signed a Memorandum of Understanding (MoU) with Country’s Largest Telecom Operator Grameenphone Ltd. on Vehicle Tracking Systems. Mr. Irteza A. Khan, Head of Consumer Division, IDLC Finance Limited and Mr. Ferdous Alam Khan, Head of Business Market, Grameenphone Limited signed the MoU on behalf of respective organizations. Senior Offi cials from both companies were also present during the MoU signing event.

In order to off er Value Added Services to its customers, IDLC Consumer Division always looks for eff ective initiatives. As a

part of those initiatives, IDLC is now proud to be associated with Grameenphone Limited for off ering the best possible VTS services in the country with attractive features. Under this partnership agreement, all customers & employees of IDLC Group will avail the VTS services from Grameenphone at a special price.

27


After successful completion of “CD CHAMPS-2013”, the largest sales campaign of IDLC Consumer Division, a Grand Award Distribution Ceremony was held at All Community Club, Gulshan on September 7, 2013.

The purpose of the event was to honor the winners for their outstanding contributions to Business during the campaign period (Jan ‒ Jul 2013) and to celebrate the success of the Campaign. Mr. Ziaul Hoque Khan, DMD & CFO, IDLC Finance Limited presented the awards among the winners. The New Sales Campaign “Mission Invincible” was launched simultaneously in the same event.

“CD CHAMPS-2013” Award Distribution Ceremony & Launching of New Campaign

IDLC Finance Holds Workshop on Anti-Money Laundering & Anti-Terrorism Regulations IDLC Finance Limited, the largest multi-product Non-Banking Financial Institution in Bangladesh, recently organized a day-long workshop on Anti-Money Laundering & Anti-Terrorism Regulations for its employees.

Branch managers, mid level executives and IDLC’s capital market units participated in the workshop, which was inaugurated by M. Mahfuzur Rahman, Executive Director, Bangladesh Bank. The workshop was conducted by Mohammad Mahbub Alam, Joint Director, Bangladesh Financial Intelligence Unit and Md. Masud Rana, Deputy Director, Bangladesh Financial Intelligence Unit, Bangladesh Bank. The workshop educated the audience regarding the Money Laundering Prevention Act, the Anti Terrorism Act,

consequences of non-compliance, provided guidance on how to prevent and detect money laundering and terror fi nancing etc.

Selim R.F. Hussain, CEO & Managing Director of IDLC Finance Limited, said, “IDLC has always been a standard-bearer for statutory compliance in the fi nancial industry and we intend to ensure that this reputation remains untarnished. He also addressed AML compliance framework at IDLC, importance of KYC (Know Your Customer) and KYE (Know Your Employee) etc. M. Mahfuzur Rahman, Executive Director, Bangladesh Bank, congratulated IDLC for taking this initiative and emphasized all out support from the central bank in helping to educate staff in the fi nancial sector in these new concepts.

Selim R. F. Hussain, CEO & Managing Director of IDLC Finance Limited and M. Mahfuzur Rahman, Executive Director, Bangladesh Bank, in the workshop on Anti-Money Laundering & Anti-Terrorism Regulations organized by the IDLC Finance for its employees.

28


Advance/Decline (September, 2013) Advanced Declined Unchanged

All Category 100 151 6

Top Ten Gainers’ List (September, 2013)Top Ten Gainers 30-Sep-13 29-Aug-13 % Change

RAHIMAFOOD 55.70 16.80 232%LEGACYFOOT 44.60 14.60 205%DSHGARME 76.90 30.20 155%HAKKANIPUL 35.10 17.60 99%JMISMDL 259.30 134.00 94%BDAUTOCA 45.30 23.80 90%ANWARGALV 27.50 15.80 74%ISNLTD 21.40 13.40 60%IMAMBUTTON 11.10 7.30 52%LIBRAINFU 529.80 379.80 39%

Index Movement (September, 2013) Index Point Change % Change YTD change

DSEX 3,937.68 -189.80 -4.60% -2.91%DS30 1,440.53 -99.50 -6.46% -1.35%

Monthly Market Statistics Market Statistics (September, 2013)

Unit 30-Sep-13 29-Aug-13 % Change

Mcap (All)Mn BDT 2,529,249 2,640,739 -4.22%

Mn USD 32,077 33,491 -4.22%

Mcap (Equity)Mn BDT 1,938,412 2,049,261 -5.41%

Mn USD 24,584 25,989 -5.41%

TurnoverMn BDT 2,720 5,407 -49.70%

Mn USD 34.50 68.58 -49.70%

Top Ten Losers’ List (September, 2013)Top Ten Losers 30-Sep-13 29-Aug-13 % Change

MEGHNACEM 133.80 171.70 -22%BSCCL* 215.60 275.70 -22%FAREASTLIF 92.40 115.50 -20%GPHISPAT 41.00 51.20 -20%7THICB 66.00 81.10 -19%SUNLIFEINS 52.30 64.10 -18%RECKITTBEN 799.00 928.90 -14%RENATA 703.20 805.80 -13%KEYACOSMET* 23.30 26.30 -11%GHCL 45.10 50.90 -11%

*% change includes post record date eff ects.

CAPITAL MARKET REVIEWWith the fear of potential turmoil in political frontier amid stronger volatile market phenomenon ahead of long closure of Eid-Ul-Adha, the bourse observed gradual wane in excitement. Profi t taking tendency, especially naturalizing quick return gained stronger momentum this month, resulting a downward pressure both in indexes and turnover. As month ended, DSEX lost 189.80 points and levelled at 3,937.68 points after breaking one & half months’ psychological level of 4,000 points. In the meantime, turnover went below BDT 3,000 mn level and streamlined at months’ lowest point of BDT 2,719.95 mn. However, as long closure due to Eid-Ul-Adha was approaching, tendency to cash out was strongly observed amid investors.

Previous month’s declining vibe stretched this month also. Although, month started with green signal, it could not hold more than single session and sheds off started with the news of decline in foreign investment in national dailies. Meanwhile, volatile market scenario backed by surge in scrip wise swings and shadow in future market directions insisted investors to realize short-term but higher return of Mini Cap and Micro Cap scrips throughout the months. Those combinely forced investors’ confi dence to dwindle gradually amid downbeat market scenario and focus on frequent selling spree.

Continuous pressure from foreign diplomats on political parties to ease up political frontier knocked investors’ sentiment positively and acted as a core catalyst for sudden hype at the mid- session of month. Additionally, news of High Court’s repeal of postpone order

on RNSPIN’s dividend declaration attracted some of the participants to it and thus made a spike in Textile sector’s turnover to capture one-forth part of total turnover and leading position in return. As investors continued to stay watchful over ongoing developments, session repeated the trend of starting with hype but eventually slowing down.

However, a natural re-bounce with the surge of 45.96 points took place at the mid part of month. Meanwhile FAREASTFIN made 90% gain in its debut trading. But trading halts of certain stocks, unrest in RMG sector and fear of potential turmoil dragged down this upbeat vibe and kept bourse fl at for next few sessions. Then, market started to take toll with 178.49 points at six negative sessions out of last eight sessions. Consequently, DSEX broke psychological level of 4,000 points at the second last session of the month and turnover broke 33 sessions’ record and went below BDT 3,000 mn level.

Corporate activities increased during the month. BSEC decided to delist 1STBSRS managed by BDBL and delisted ICBAMCL1MF managed by ICB AMCL and approved for converting it from close-end to open-end mutual fund. Additionally, it gave notch to Mozaff ar Hossain Spinning Mills Ltd. for Initial Public Off ering (IPO). Meanwhile, the regulator approved Guideline for Market Surveillance System. At the ending part of month, BSEC approved so far expected Demutualization Scheme. Alongside these, it ordered DSE to submit investigation report on some Small Cap scrips regarding abnormal price increase within 15 days.

29


Top Ten by Value (September, 2013)Top Ten (Value) 30-Sep-13 29-Aug-13 % Change Value

GP 189.40 213.30 -11.20% 4,339.19 RNSPIN 29.00 28.90 0.35% 2,871.84 HEIDELBCEM 378.40 416.10 -9.06% 2,695.33 ACTIVEFINE 92.10 93.10 -1.07% 2,463.38 PADMAOIL 323.20 375.40 -13.91% 2,204.76 SQURPHARMA 173.90 169.90 2.35% 2,173.65 MPETROLEUM 264.10 283.00 -6.68% 2,097.67 OLYMPIC 206.90 221.80 -6.72% 2,030.28 CMCKAMAL 34.90 26.10 33.72% 1,898.80 JAMUNAOIL 227.20 235.10 -3.36% 1,567.54

**% change includes post record date eff ects

Lowest P/E and Lowest P/BV ratio

Lowest P/E Lowest Price/NAV

RNSPIN 5.11 GREENDELMF 56%

FAMILYTEX 5.41 PHPMF1 56%

SOUTHEASTB 5.48 POPULAR1MF 57%

IFIC 6.09 1JANATAMF 58%BRACBANK 6.33 DBH1STMF 58%UCBL 6.80 IFILISLMF1 60%

RUPALIBANK 7.01 IFIC1STMF 61%

ONEBANKLTD 7.16 AIBL1STIMF 64%

KPCL 7.37 ICBSONALI1 65%

STANDBANKL 7.70 EXIM1STMF 66%

Top Ten Market Capitalization (September, 2013)

Top Ten Mkt Cap BDT mn % Change

GP 255,747 -11.20%BATBC 93,708 1.13%SQURPHARMA 83,820 2.35%TITASGAS 81,512 -3.40%ICB 78,859 -9.95%ISLAMIBANK 52,837 -2.96%LAFSURCEML 38,558 -6.48%PADMAOIL 28,863 -13.91%BSCCL 28,106 -21.80%PUBALIBANK 26,160 5.76%

Recent Corporate Declaration Company name Record Date AGM Date SD* CD** Rights

Delta Brac Housing Finance Corporation Ltd. 04.12.13 30.09.13 - 25% -

United Airways (BD) Ltd. 04.12.13 03.10.13 12% -

Quasem Drycells 07.11.13 09.10.13 10% -*SD = Stock Dividend **CD =Cash Dividend.

Market Capitalization

DSE Turnover and DGEN

Market Cap Class wise Stock Movement

USD in mn

BDT in mn

30


Sectoral Indicators Sector PerformanceSector Value in BDT mn % of Total Trade Industry Cap Forward PE Trailing PE Price/BV SeptemberBank 155.02 3.30% 16.94% 12.52 10.57 1.12 -3.76%Tele 373.84 7.96% 15.10% 25.76 21.00 8.80 -11.39%Fuel & Power 463.18 9.86% 14.63% 14.13 12.94 5.47 -7.31%Pharma 558.33 11.89% 11.29% 15.59 17.98 5.42 -3.10%NBFI 203.34 4.33% 7.90% 25.84 18.92 2.30 -7.18%Food 273.19 5.82% 5.75% 24.72 23.44 9.31 4.42%Cement 260.98 5.56% 4.99% 17.47 20.20 6.34 -9.82%Engineering 408.87 8.70% 4.86% 21.26 18.63 4.64 -8.78%Textile 819.86 17.45% 3.76% 16.07 16.35 3.84 1.02%Life Insurance 111.41 2.37% 3.29% n/a - n/a -5.06%Non Life Insurance 159.07 3.39% 2.71% 15.23 16.52 2.99 0.71%Miscellaneous 175.55 3.74% 2.05% 23.25 29.42 4.07 -6.51%Travel & Leisure 159.63 3.40% 1.83% 20.90 23.81 1.56 -3.85%Mutual Fund 141.18 3.01% 1.78% n/a - 0.81 n/aCeramic 52.70 1.12% 1.11% 24.39 26.94 2.18 -9.87%TANNERY 117.65 2.50% 0.86% 21.33 14.38 5.08 -9.26%Service 49.40 1.05% 0.48% 24.46 16.71 3.35 -1.31%Corporate Bond 3.61 0.08% 0.35% n/a - n/a n/aIT 95.47 2.03% 0.24% 26.56 24.49 1.67 -1.38%Paper & Printing 2.82 0.06% 0.04% 51.89 65.45 0.96 99.43%Jute 9.49 0.20% 0.02% 47.34 51.30 5.03 10.31%

4,697.47 17.71 16.46 4.62

Sector Indicators (September, 2013)

Following table exhibits the open-end Mutual Funds in order of YTD change in NAV.

Sl No Name of Mutual Funds Initial Fund

Size (BDT mn)Re-Purchase Price

Selling Price

Eff ective Date* NAV % Change in NAV

from last weekYTD Change in NAV

Fund Manager

1 Prime Financial First Unit Fund** 200 96.00 99.00 2-Oct-13 98.02 -0.64% 20.80% PAMC

2 Bangladesh Fund 50000 100.00 103.00 29-Sep-13 99.70 0.11% 10.75% ICB AMCL

3 MTB Unit Fund 1000 10.00 10.30 29-Sep-13 10.31 -6.19% 1.85% ACAML

4 Shandhani Life Unit Fund 500 9.85 10.15 2-Oct-13 10.48 0.58% 0.98% Alif AMCL

5 ICB AMCL Unit Fund 100 255.00 260.00 29-Sep-13 254.62 -0.02% -3.59% ICB AMCL

6 ICB AMCL Pension Holders' Unit Fund 100 217.00 222.00 29-Sep-13 216.65 -0.02% -9.48% ICB AMCL* For ICB AMCL and ACAML, eff ective date is the date from which repurchase price, selling price and NAV are applicable. For PAMC and Alif AMCL, eff ective date is the date until which repurchase price, selling price and NAV are applicable. ** Sale and repurchase of Prime Financial First Unit Fund remains closed each Thursday.

Following table exhibits the Closed-End Mutual Funds (42)* in order of YTD change in NAV based on latest NAV/unit as on September 26, 2013. On the basis of Price/NAV, 38 Mutual Funds out of 42 were traded below their respective NAV. GREENDELMF and PHPMF1 had the lowest Price/NAV and both were traded at 44% discount. 1STPRIMFMF and GRAMEEN1 were traded at higher multiple than others, 92% and 53% premium, respectively. Last week, NAV of 36 Mutual Funds decreased, 3 Mutual Funds increased and 3 remained unchanged. On the other hand, price of 15 Mutual Funds decreased, 20 increased while 7 remained unchanged. On an average, price of Mutual Funds increased by 0.24% while NAV decreased by 1.34% from previous week, against a 2.06% decrease in DSEX over the week. In terms of price changes, 34 Mutual Funds outperformed DSEX over last week. Among all the asset managers, VIPB outperformed most in terms of change in NAV of its funds, adding an additional 0.03% on an average over Mutual Funds managed by it.

Weekly (Sept. 22-Sept. 26, 2013) Update on Open-end Mutual Funds

Weekly (Sept. 22-Sept. 26, 2013) Update on Closed-end Mutual Funds

31


DSE Code Name of Mutual FundsPrice

(September 26, 2013)**

Latest NAV/unit

Price/NAV

%Change of Price from last week

%Change in NAV from last week

YTD Change in NAV

Performance against DSEX (YTD)

"Redemption Year"

"Fund Manager"

4THICB 4th ICB M.F. 171.80 227.44 76% 1.18% 0.45% 67.69% Outperformed 2013 ICB6THICB 6th ICB M.F. 47.00 52.25 90% 1.95% -0.13% 60.67% Outperformed 2013 ICB3RDICB 3rd ICB M.F. 188.00 239.76 78% 6.88% -2.23% 60.48% Outperformed 2013 ICB5THICB 5th ICB M.F. 155.50 172.67 90% -10.89% -2.50% 56.15% Outperformed 2013 ICB2NDICB 2nd ICB M.F. 259.80 242.45 107% -3.56% -2.72% 55.00% Outperformed 2013 ICB7THICB 7th ICB M.F. 71.70 90.43 79% -15.65% -0.83% 52.44% Outperformed 2013 ICB1STICB 1st ICB M.F. 860.00 1,126.73 76% 1.30% -4.75% 29.47% Outperformed 2013 ICBIFILISLMF1 IFIL Islamic Mutual Fund-1 5.30 9.00 59% 3.92% -2.70% 27.12% Outperformed 2019 ICB AMCL8THICB 8th ICB M.F. 51.00 58.27 88% 1.80% -0.97% 24.78% Outperformed 2013 ICBICBISLAMIC ICB AMCL Islamic Mutual Fund 17.20 16.70 103% -1.71% -2.11% 12.08% Outperformed 2014 ICB AMCLRELIANCE1 RELIANCE ONE MUTUAL FUND 8.00 11.39 70% 1.27% -0.44% 11.34% Outperformed 2021 AIMSICB3RDNRB ICB AMCL Third NRB Mutual Fund 5.00 7.05 71% -1.96% -3.95% 10.85% Outperformed 2019 ICB AMCL

1JANATAMF First Janata Bank Mutual Fund 5.60 9.90 57% -1.75% -1.00% 10.74% Outperformed 2020 RACE

SEBL1STMF Southeast Bank 1st Mutual Fund 7.90 10.93 72% 1.28% 0.00% 10.00% Outperformed 2021 VIPB

EBLNRBMF EBL NRB MUTUAL FUND 8.00 10.52 76% 11.11% -0.94% 9.79% Outperformed 2021 RACE

NLI1STMF NLI First Mutual Fund 8.40 11.26 75% 3.70% 0.09% 9.42% Outperformed 2022 VIPBABB1STMF AB Bank 1ST Mutual Fund 6.80 10.84 63% -1.45% -0.37% 9.29% Outperformed 2022 RACEGRAMEENS2 Grameen One : Scheme Two 16.00 16.33 98% -1.84% -1.21% 9.23% Outperformed 2023 AIMSICB2NDNRB ICB AMCL 2nd NRB Mutual Fund 9.30 10.31 90% -2.11% -3.46% 9.10% Outperformed 2018 ICB AMCL

ICBEPMF1S1 ICB Employees Provident MF 1: Scheme 1 5.80 7.08 82% 3.57% -4.07% 9.09% Outperformed 2019 ICB AMCL

AIMS1STMF Aims 1st M.F. 38.80 45.93 84% -3.96% -0.95% 9.07% Outperformed 2015 AIMS

FBFIF First Bangladesh Fixed Income Fund 8.60 10.57 81% 1.18% -0.38% 8.91% Outperformed 2022 RACE

ICBAMCL2ND ICB AMCL Second Mutual Fund 5.50 7.81 70% 1.85% -2.62% 8.77% Outperformed 2019 ICB AMCL

PRIME1ICBA Prime Bank 1st ICB AMCL Mutual Fund 5.30 7.09 75% 1.92% -3.54% 8.74% Outperformed 2019 ICB AMCL

GRAMEEN1 Grameen Mutual Fund One 45.10 29.46 153% -2.38% -1.21% 8.59% Outperformed 2015 AIMS

PHPMF1 PHP First Mutual Fund 5.40 9.59 56% 0.00% -1.24% 8.36% Outperformed 2020 RACE

POPULAR1MF Popular Life First Mutual Fund 5.80 10.21 57% 0.00% -0.58% 8.34% Outperformed 2020 RACE

PF1STMF Phoenix Finance 1st Mutual Fund 5.20 6.84 76% 0.00% -3.53% 8.06% Outperformed 2019 ICB AMCL

ICB1STNRB ICB AMCL 1st NRB Mutual Fund 23.00 24.05 96% -2.13% -1.84% 7.94% Outperformed 2017 ICB AMCL

1STBSRS 1ST Bangladesh Shilpa Rin Sangstha M.F. 94.50 110.25 86% 2.72% -0.95% 7.28% Outperformed 2013 BDBL

TRUSTB1MF Trust Bank 1st Mutual Fund 7.20 10.20 71% 0.00% -1.45% 6.86% Outperformed 2019 RACE

LRGLOBMF1 LR Global Bangladesh Mutual Fund One 7.00 10.57 66% 2.94% 0.09% 6.55% Outperformed 2021 LR Global

IFIC1STMF IFIC Bank 1st Mutual Fund 6.40 10.18 63% 0.00% -0.59% 5.84% Outperformed 2019 RACE

AIBL1STIMF AIBL 1st Islamic Mutual Fund 6.30 9.86 64% 0.00% -0.20% 4.67% Outperformed 2021 LR Global

DBH1STMF DBH First Mutual Fund 5.40 9.55 57% -1.82% 0.00% 4.03% Outperformed 2019 LR Global

MBL1STMF MBL 1st Mutual Fund 6.10 9.62 63% 0.00% -0.10% 3.89% Outperformed 2021 LR Global

GREENDELMF Green Delta Mutual Fund 5.10 9.13 56% -1.92% -0.11% 3.28% Outperformed 2020 LR GlobalEBL1STMF EBL First Mutual Fund 6.90 9.72 71% 4.55% -0.51% 0.68% Outperformed 2019 RACEEXIM1STMF EXIM Bank 1st Mutual Fund 7.00 10.80 65% 1.45% -0.28% -1.82% Underperformed 2023 RACENCCBLMF1 NCC Bank Mutual Fund 1 8.60 10.79 80% 7.50% 0.00% -2.35% Underperformed 2022 LR Global1STPRIMFMF Prime Finance First Mutual Fund 21.10 10.99 192% 4.46% -1.43% -2.57% Underperformed 2015 ICB AMCLICBSONALI1 ICB AMCL Sonali Bank Ltd. 1st Mutual Fund 6.10 9.55 64% -3.17% -1.04% -5.45% Underperformed 2023 ICB AMCL

YTD Change in DSEX*** -1.05%

* Total number of Close-End Mutual Fund is now 42 as ICBAMCL1ST was delisted in Sept. 29, 2013.** Latest trade price has been considered.***YTD Change in DSEX is for the period of Jan 27, 2013 to Sep 26, 2013.

32


This Document has been prepared and issued by IDLC Finance Limited on the basis of the public information available in the market, internally developed data and other sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts & information stated in the Document are accurate as on the date mentioned herein. Neither IDLC Finance Limited nor any of its director, shareholder, and member of the management or employee represents or warrants expressly or impliedly that the information or data of the sources used in the Document are genuine, accurate, complete, authentic and correct. Moreover, none of the director, shareholder, and member of the management or employee in any way is responsible about the genuineness, accuracy, completeness, authenticity and correctness of the contents of the sources that are publicly available to prepare the Document. It does not solicit any action based on the materials contained herein and should not be construed as an off er or solicitation to buy sell or subscribe to any security. If any person takes any action relying on this Document, shall be responsible solely by himself/herself/themselves for the consequences thereof and any claim or demand for such consequences shall be rejected by IDLC Finance Limited or by any court of law.

DISCLAIMER

Terminologies Free Float : % of total shares not owned by Sponsors/ Directors, & Govt. Forward PE : Based on Annualized Earnings of the latest declared quarterTrailing PE : Based on Latest 12 Months Earnings

Company Profi leLinde Bangladesh Limited (DSE: LINDEBD) was incorporated in 1973. The company became a listed entity later in 1976 in DSE and in 1996 in CSE. LINDEBD is a subsidiary of BOC Group Limited of United Kingdom, which, itself is fully owned by Linde AG of Germany.

The principal activities of LINDEBD are manufacturing and marketing of industrial and medical gases, anesthesia, welding products and equipments and ancillary equipments. Another revenue source of the company is rental income from cylinders used by the customers and from vacuum insulated evaporators installed at customers’ premise.

Key Revenue Drivers & Company InsightRevenue of the company is generated from three business segments; i.e. Bulk, PG & P and Hospital care. Bulk segment accounts for business in of industrial liquid gases. This segment registered 19% growth riding on increased sales of liquid oxygen, nitrogen and carbon dioxide. The second segment, Process Gas and Packages (PG & P) segment accounts for industrial compressed gas and mid steel electrodes. Due to lower activities in real estate and boat building industry, the key product of the segment, mid steel electrode experienced a 10% decline in volume. However, price adjustment off set the decline in volume and let the company register a growth of 1% in terms of value. Medical gas, equipments and other relevant services constitute the third segment, Hospital Care. Because of losing business of government hospitals to competitors, this sector performed 3% below that of last year. However, the strategy of converting compressed medical oxygen to liquid medical oxygen has helped revenue from medical oxygen to improve by 13%.

Financial PerformanceRevenue grew by 2% in 2012, mainly due to 10% growth in revenue from ASU gases. However, Infl ationary pressure coupled with adverse exchange rate slashed the profi t margins in the year. In addition, interest income halved in 2012 while a BDT 39 mn restructuring expense increased operating cost, signifi cantly. All this resulted in a 29% decline in profi t. Nonetheless, in HY, 2013 the company has observed a 6% growth in revenue and 21% growth in NPAT.

INVESTMENT INSIGHT: Linde Bangladesh LimitedLinde Bangladesh Limited (DSE: LINDEBD)Current Price (September 26, 2013) 700.10Total Number of Share (mn) 15.22Free Float (%) 40.0%Forward PE‒ LINDEBD * 15.52xTrailing PE ‒ LINDEBD * 19.66xForward PE - Fuel & Power 14.47x

* Based on Annualized Earnings of the latest declared quarter

Financials (BDT mn)** 2011 2012 HY, 2013** (unaudited)

Revenue 3,730 3,817 2,045Gross profi t 1,450 1,290 723Operating profi t 867 627 390Net Profi t after tax 681 482 343Total Assets 3,000 3,199 3,282Total equity 2,166 2,192 2,367

YoY Growth (%) 2011 2012 HY, 2013 (unaudited)

Net Revenues 17% 2% 6%Net Profi t after tax 2% -29% 21%

Per share (BDT) 2011 2012 HY, 2013 (unaudited)

Restated Earning per Share (EPS) 7.47 5.29 3.76Restated Book Value per Share (NAV) 23.73 24.02 25.94

Others 2011 2012 HY, 2013 (unaudited)

Gross profi t margin 39% 34% 35%Operating profi t margin 23% 16% 19%Net profi t margin 18% 13% 17%ROA 23% 16% 10%ROE 33% 22% 15%Stock Dividend 0% 0% -Cash Dividend 350% 310% -

** Accounting year Jan-Dec.Source: Financial statements of Linde Bangladesh Limited;

Research, IDLC Investments Limited.

monthly business review - september 2013

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