Flash Report /
Bangladesh

BRAC Bank: Q2 22 – 22% NPAT decline on spread contraction & subsidiaries' loss

  • BRAC Bank reported BDT 1,041mn NPAT (excluding minority interest) in Q2 CY22 against BDT 1,340mn reported in Q2 CY21

  • The lending portfolio of the core banking business increased by c32% YoY and c16% YTD

  • bKash’s net loss decreased by c41% YoY to BDT 42.5mn in H1 CY22. It made positive PBT of BDT 18mn in Q2 CY22

Shopnil Paul
Shopnil Paul

Research Associate

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IDLC Securities
16 August 2022
Published byIDLC Securities

BRAC Bank, our only recommended bank in Bangladesh, reported BDT 1,041mn NPAT (excluding minority interest) in Q2 CY22 against BDT 1,340mn reported in Q2 CY21, implying c22% YoY decline. Though the consolidated lending portfolio increased by c32% YoY, 38bps drop in interest rate spread (calculated) and BDT 79mn loss incurred by its two stock market subsidiaries in Q2 CY22 vs BDT 134mn profit reported in Q2 CY21 were attributable to the decline in BRAC’s earnings.  

Key Positives

  • The lending portfolio of the core banking business increased by c32% YoY and c16% YTD. This is more than Bangladesh’s private sector credit of 13.7% reported in July, 2022. As the economic activities in the country gained momentum after the complete withdrawal of movement restrictions and lock-down measures in Q4 CY21, BRAC’s lending activities outperformed the industry average and maintained double-digit growth for the past three quarters consecutively.

  • The commission, brokerage and exchange income of the banking business has more than doubled in Q2 CY22. This is attributable to the gain on the foreign currency dealings from exchange rate fluctuations. The local currency (BDT) depreciated by 9.25% against USD in FY22. From the volatile foreign exchange market, BRAC Bank earned BDT 928mn in H1 CY22 that is more than five times the exchange gain reported in H1 CY21. In addition, the country’s increased international business led to 66% YoY growth in LC issuance commission (BDT 348mn) for BRAC in H1 CY22.  

  • bKash's gross revenue in Q2 CY22 was close to BDT 10bn. This is the third consecutive month where bKash top-line revenue has crossed BDT 8.5bn. The gross margin of the company also increased by 391bps QoQ and 651bps YoY to 27.0%.

  • bKash’s net loss decreased by c41% YoY to BDT 42.5mn in H1 CY22. The company also made positive profit before tax of BDT 18mn in Q2 CY22 for the first time since Q1 CY19. The 20.7% net revenue growth, c220bps improvement in gross margin and BDT 595mn net interest income earned on BDT c18bn fixed deposit (made from Softbank’s investment in bKash) improved the bottom line of the leading mobile financial service company in H1 CY22.

Key Concerns

  • BRAC Bank’s (core banking business) interest rate spread (calculated) contracted by 74bps to 4.2%. While the lending rate (calculated) dropped by 38bps YoY to 7.0%, the deposit rate (calculated) increased by 36bps YoY to 2.8% as the bank has to give inflation-adjusted interest on fixed deposits following the central bank’s instruction.   

  • BRAC Bank’s (core banking business) cost-to-income ratio increased by 770bps to 58.3% in H1 CY22. The human resource-related cost has experienced a 22% increase YoY during the period, while other operating expenses increased by 31%.

  • The consolidated investment income declined to BDT 1,399mn in Q2 CY22 from BDT 1,883mn reported in Q2 CY21, implying c26% YoY decline. However, it is attributable to a higher base of last year's investment income and a recent increase in treasury bond rates.  

  • The contribution of capital market subsidiaries in the group earnings has also declined. These two subsidiaries in total reported BDT 79mn net loss in Q2 CY22 vs the net profit of BDT 134mn reported in Q2 CY21.