Why fresh funds are so urgent

The Investment Corporation of Bangladesh (ICB) is hopeful of returning to profit if it gets immediate liquidity support to overcome its liabilities.

The largest investment bank, which is highly dependent on the secondary market for revenue generation, has already shown signs of recovery, securing a 90 per cent year-on-year growth in capital gains to Tk 2.02 billion in the nine months through March this year. However, the rise in dividend income during the period was not significant.

Despite the improved capital gains, the ICB incurred a loss of Tk 2.79 billion in the nine months to March, primarily because of interest payments amounting to Tk 6.98 billion during the period.

It now needs to repay its expensive loans to climb out of the red.

A top ICB official familiar with the development said the previous board had prepared a recovery plan, estimating a requirement of Tk 50 billion to turn around the institution within five years.

But the government provided only Tk 30 billion last year. "If the government provided Tk 50 billion at that time at once, ICB would have gradually overcome the situation as per the plan," said the official, preferring anonymity.

Of the Tk 30 billion in low-cost funds received last December, the ICB repaid Tk 20 billion of its high-interest loans and invested the remaining amount in the equity market.

The government is now considering providing another Tk 10 billion from the revised national budget to help the ICB mitigate its liquidity crisis and ensure stability in the stock market.

Prof Abu Ahmed, chairman of the ICB, said the investment bank would be able to recover from the crisis if the government provides "proper support".

"You can look at our financial statement; we have secured a bigger capital gain this year as the government supported us with low-cost funds last year.

"The faster we get the fund [fresh fund], the quicker we will recover," Mr Ahmed said, adding that the organisation needs at least Tk 20 billion immediately.

The corporation has long been playing a stabilising role in the capital market, using funds received from the central bank as well as its own resources. After the 2010 stock market debacle, the ICB borrowed heavily at high interest rates and invested in the volatile market to support stability.

However, the institution has also suffered losses from poor investment decisions. It currently has fixed deposit receipts (FDRs) worth more than Tk 9.20 billion locked in weak and scam-hit non-bank financial institutions, from which it is not receiving any return.

ICB had maintained a strong performance after its listing in 1977 through 2011, when it posted a record annual profit of Tk 5 billion. Its gradual decline began thereafter, caused by factors such as a prolonged bear market, a high cost of funds, liquidity crunch and overdependence on the stock market for income.

With its investment capacity severely weakened, the corporation sought Tk 50 billion from the government in May last year to stabilise the equity market and repay its high-cost borrowings.

ICB Securities Trading Company - a subsidiary - trades shares on behalf of investors while managing its own portfolio, earning commission and capital gains. Two other subsidiaries - ICB Asset Management Company and ICB Capital Management - have failed to generate expected earnings amid the prolonged market gloom.

farhan.fardaus@gmail.com