The Bangladesh Bank (BB) will consider the plea of the state-run Investment Corporation of Bangladesh (ICB) for a loan of Tk 50 billion only if the government gives sovereign guarantee for the fund.
The central bank said this in a letter sent to the ICB on June 13, responding to the latter's application seeking fund support.
In the letter, the BB says there is no scope of approving loans sought by any eligible institution/corporation without proper collaterals and the government's guarantee as per the Bangladesh Bank Order 1972.
The ICB will have to apply again to the central bank for the loan if it manages to secure sovereign guarantee.
The corporation on May 21 sought a fund worth Tk 50 billion from the central bank so it could help stabilize the equity market and repay loans it had taken at high rates of interest to support the market.
"Now, we are working to submit an application to the Ministry of Finance (MoF) for getting a sovereign guarantee," said Md. Abul Hossain, managing director of the ICB.
The ICB's application will include the action plan for utilising the proposed fund and strategy of repaying the money.
Mr Hossain said the finance ministry had given them verbal assurance of providing guarantee for the fund sought from the central bank.
The state-run investment bank has been passing through a tough time with a heavy burden of expensive loans received earlier from different state-run and private commercial banks and other sources.
ICB officials said that around half of the fund, if granted, would be injected in the capital market while the remaining 50 per cent would be utilised to repay loans.
After the 2010 stock market debacle, the organisation 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.
For example, 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 incurring a loss for the first time for Q1, FY24.
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