Why Union Bank refrained from investing in stocks

Infographic: TBS

In a time when the stock market is witnessing a fund crunch, the Union Bank has decided to refrain from investing its available fund in the secondary market, fearing that it might incur losses in the dull capital market.

After missing the investment deadline of January this year, the bank is now seeking a time extension till June 2024.

The bank has already secured shareholders' nod for time extension in its annual general meeting (AGM), held on 15 June, and is subject to the approval of the Bangladesh Securities and Exchange Commission (BSEC).

Although, before the bank missed its January deadline, the BSEC extended the investment deadline by six months till June 2023.

Ali Hossain Bhuiyan, company secretary of the Union Bank, told The Business Standard, "We got the fund in January 2022, when the stock market was facing turmoil, and the situation remains that way to date."

"The management has decided not to invest until the stock market's situation improves. Because, the bank has already invested a portion of the fund and incurred losses as the value of the marketable securities declined than the investment", he added. 

If losses are incurred against stock investment, the bank has to maintain provisions. Hence, the bank has taken a cautious stance to avert losses considering the market's downward condition, he said, adding that the bank aims to invest the full amount in stocks by June 2024, if it gets approval from the securities regulator. 

Tk56cr remains unutilised

As per the prospectus, the Union Bank has allotted Tk75 crore of its initial public offering (IPO) fund to invest in the secondary market within a year of receiving the fund.

The bank received the fund in January 2022 and was supposed to invest it by January this year. 

According to the IPO fund utilisation report till December 2022, the bank has invested Tk19 crore in the secondary market, which is 25.33% of the allotted fund.

But Tk56 crore, 74.67% of the allotted fund, has remained unutilised which means despite the available fund in hand, the bank has not invested in the stock market.

The private sector lender has raised Tk428 crore from the stock market issuing shares.

Of which, Tk100 crore for SMEs, Tk146.5 crore for project finance, and Tk100 crore for investment in the capital market basically in the 'A' category listed securities. The rest is for IPO expenses.

According to a report of the Union Bank, till December last year, 13.2% of the IPO fund was unutilised.

Now, the bank is now seeking a one-year time extension to invest in the secondary market, and the unutilised amount, allotted for IPO expenses, will be diverted to SMEs.

According to its financials, in the first quarter (January to March) 2023, the bank made a profit of Tk35.39 crore, up from Tk34.10 in the same time of the previous year.

In 2022, the bank made a profit of Tk151.35 crore and recommended a 5% cash dividend for the shareholders, which was approved in AGM.