The Investment Corporation of Bangladesh (ICB) has reformed its portfolio management rules to avert bad investments and hold people behind them accountable "in the best interest of the institution".
Until now, the country's largest investment bank, which has been criticised repeatedly for bad investment choices, lacked a well-defined mechanism to ensure internal discipline, according to sources who preferred to be anonymous.
The ICB formed two committees, investment oversight committee and investment audit committee, led by its Chairman Dr Suborna Barua, to oversee day-to-day activities with a view to ensuring the enforcement of the revised rules.
Md Abul Hossain, managing director of ICB, confirmed that the board of directors had approved the revised internal portfolio management rules and formed the committees.
"The oversight committee will see if investment management is done in the best interest of the institution and monitor performance," he said.
The state-run investment bank made the move at a time when it has been scrambling to secure low-cost funds from the government to overcome losses and play its role of supporting the stock market. It ran into the red for the first time in the first quarter of FY24. It made a profit in the following quarter but then returned to the red in Q3 of FY24, with losses amounting to Tk 3 billion.
"The investment oversight committee will decide which shares to trade in and manage the investment portfolio more efficiently than how it was done before," said Mr Hossain.
The investment audit committee will examine investment decisions to make sure they comply with the investment policy, he added.
The reforms are meant to improve transparency and accountability in portfolio management.
The audit committee will submit an audit report to the investment oversight committee directly. The latter will then be required to notify the board of its observations in the board meetings.
Apart from all these, the ICB adopted a policy not to invest in "Z" category shares, a shift from its previous position.
Moreover, to minimize conflict of interest, portfolio managers must submit updated statements of their own and family members' beneficiary owner's (BO) accounts, if they have any, to the investment oversight committee, according to a new provision.
ICB Chairman Dr Suborna Barua said the portfolio management rules had been modified for the sake of transparency and accountability.
"The new provisions incorporated in the rules were absent before," said Mr Barua, also a professor at the department of International Business at the University of Dhaka.
There are allegations that ICB has not acted responsibly enough in investing in the stock market. In some cases, ICB was found to have purchased shares at inflated prices. Also, it had invested in a number of troubled non-bank financial institutions and companies, weakening its financial base.
The ICB managing director, however, said the Corporation had failed to generate expected return due to the prolonged bear run of stocks.
It had maintained a strong performance after the listing in 1977 through 2011, the year it gained its highest annual profit of Tk 5 billion. Then its gradual decline began and endured a loss of Tk 3 billion in the nine months through March this year.
High cost of funds, liquidity crunch, and over-dependence on the stock market for revenue have squeezed ICB's investment capacity.
The Corporation has supported the equity market with funds borrowed from the Bangladesh Bank and of its own. 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.
According to financial statements for FY23, ICB has investments worth Tk 128 billion in stocks, debentures and corporate bonds, equivalent to more than 2 per cent of the total value of the present equity market.
Besides, ICB has Tk 89 billion in term deposits from the general public, banks and other financial institutions.
ICB appealed for low-cost funds
To overcome the crisis, the Corporation in May this year sought Tk 50 billion from the Bangladesh Bank so that it could help stabilize the equity market and repay high-cost loans.
The BB in response sought sovereign guarantee to release the fund.
Managing Director Mr Hossain expressed the hope that his organisation would get the fund shortly as the finance ministry had already given verbal assurance of providing guarantee for the fund from the central bank.
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