The loan amounting to Tk 50 billion that the loss-making state-owned investment bank, the Investment Corporation of Bangladesh (ICB), has sought from the Bangladesh Bank (BB), is learnt to be under consideration subject to its (ICB's) obtaining a sovereign guarantee from the government. Notably, ICB has been in troubled waters since 2010's stock market crisis as it borrowed expensive funds to invest in the capital market to gain stability. In the process, its interest expenses turned out to be about double its interest income by the end of FY 2022-23. At present, according ICB sources, it has to pay about 1.0 billion taka every quarter as interest to various banks and the government.
Obviously, this is an unsustainable situation for this statutory entity. So, if it has to play its mandated task of ensuring a vibrant capital market and help companies meet equity gap, the government will be required to help ICB to overcome its fund crisis. As reports go, fifty per cent of this badly needed loan fund once made available to ICB would be used to stabilise the volatile stock market, while the rest would go to repay the accumulating debts attributable to bank loans and high interest on investors' term deposits with it (ICB).
In this connection, the capital market's volatility can be traced back to the removal of floor price restrictions in January 2024, about two years after its imposition in July 2022 by the Bangladesh Securities Exchange Commission (BSEC). It is worthwhile to note that floor price is the lowest price at which stocks can be traded. It means, share prices cannot fall below that line. The stock market's volatility having to do with liquidity crunch and high cost of funds resulted in a marked fall in indices and turnovers in both the Dhaka and Chattogram bourses. As expected, the ICB incurred losses, the investors experienced capital erosion and the market capitalisation dropped by Tk1.0 trillion. The ICB itself faced a loss amounting to Tk2.67 billion between July 2023 and March 2024.
Small wonder that the investors' confidence in the share market has been eroding in tandem with persistent fall in the stock market indexes, thanks to the prolonged macroeconomic crises marked by an ailing banking sector, rising inflation and bank interest rates, depreciating BDT against USD and so on. That led to, as Central Depository Bangladesh Ltd (CDBL) data show, the number of beneficiary owners' (BO) accounts constantly declining in recent months and years. Though every BO account may not belong to a stock market investor, it still points to a disconcerting trend. Especially, overcrowding of the market by junk stocks which are driving out good ones have been instrumental in compelling informed investors to withdraw from the stock market.
Overall, this does not portray a promising prospect for the capital market. To restore investors' confidence, it is important that the listed companies in the stock market have sound corporate governance. Conditions need to be created where companies having strong financial base, including large corporate houses with the capacity for pulling good investors, are encouraged to join the capital market in greater numbers. Until that happens, the ICB should continue to play its robust role in the capital market as a guide to investing companies and facilitating the flow of capital between the investors and businesses. To that end, the government's prompt decision on issuing a sovereign guarantee against the proposed BB loan for ICB may contribute to expediting the capital market's early stabilisation.
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