ICB left on its own as finance ministry rejects Tk 50b loan plea

The interim government has turned down the ICB's plea for a loan worth Tk 50 billion sought to strengthen its financial base and support the country's capital market.

"The government now is not willing to disburse any loan. It would be better if some funds could be disbursed by the government," said Prof Abu Ahmed, newly-appointed chairman of the state-run Investment Corporation of Bangladesh (ICB).

The largest investment bank has gotten itself into trouble, as loans to many organisations, particularly non-bank financial institutions, turned sour and income from its investments in the equity market dwindled sharply in the depressed market.

The Financial Institutions Division (FID) last week rejected the ICB's loan proposal.

Asked how the ICB will recover from its financial woes, Mr Ahmed said the Corporation will have to survive with whatever assets it has.

"The Corporation now needs to utilise its assets and resources efficiently.

"Earlier, it [ICB] had to cater to vested quarters. The ICB injected funds into junk stocks to make unscrupulous persons happy, leading to a huge loss in the company's investment portfolio.

"The damage has already been done. Having taken charge of the Corporation as chairman, I've delivered a message that any malpractice will not be allowed," added Mr Ahmed.

ICB officials said the investment bank had loans worth around Tk 120 billion taken from public and private banks, and other financial institutions.

Now, it is very difficult for the ICB to continue operations by taking bank loans due to higher interest rates.

After the 2010 stock market debacle, the ICB collected funds at high interest rates and invested a substantial amount in the market to facilitate its stability.

The Corporation's interest expense grew at a much faster pace every year between FY10 and FY23, compared to the growth of interest income. As a result, the interest expenditure ballooned to nearly double the operating income by the end of FY23.

The ICB paid Tk 8.14 billion in interest in FY23 against the funds that it had borrowed, while it earned only Tk 2.24 billion against the money lent.

The deficit between income and expenditure led to the Corporation's incurring a loss for the first time for Q1, FY24.

To come out of the red, the Corporation sought Tk 50 billion in loan from the government at a minimum interest rate of 4 per cent.

The ICB had a plan of utilising around Tk 25 billion of the proposed loan to repay bank loans and investing the remaining Tk 25 billion in the capital market.

In June, the Bangladesh Bank (BB) said it would consider the ICB's plea only if the government gave sovereign guarantee for the fund.

Subsequently, the FID was supposed to request the Ministry of Finance (MoF) for giving sovereign guarantee against the proposed loan.

A change in the political landscape on August 5, however, led to a reshuffle of people in the top positions of almost all offices, including the ministries.

Preferring anonymity, a senior ICB official said they would further try to make the ministry and the governor of the central bank understand the urgency for the loan for the Corporation.

Meanwhile, the ICB, which lacked a well-defined mechanism to ensure internal discipline, reformed its portfolio management rules in July to avert bad investments and hold people behind them accountable.

The ICB formed two committees, investment oversight committee and investment audit committee, led by the board's chairman, to oversee day-to-day activities with a view to ensuring the enforcement of the revised rules.

The internal audit committee will examine investment decisions to make sure they comply with the investment policy.

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