Midland Bank starts trade below face value

Infographic: TBS

Shares in Midland Bank opened the debut trading session below the face value of Tk10 apiece in a reflection of investor distrust in the banking sector.

The bank's shares at the Dhaka Stock Exchange (DSE) dropped by Tk1 from their face value. The shares were then put up for sale at Tk10.30 by other investors. The stock price concluded the day 2% higher at Tk10.20.

At the Dhaka Stock Exchange (DSE), the bank's shares fell by Tk1 from their face value. Several investors then bid to buy the shares at Tk10.30. On Monday, the share closed 2% higher at Tk10.20.

The new generation bank released its third quarterly financials on Thursday, reporting a 58% drop in profit during the first nine months of 2022 compared to the same period the year before.

And such a decline in profit has affected the share price of the bank, market participants think.

According to market insiders, the global banking sector is currently going through a crisis. Several banks in America and Europe, including Silicon Valley Bank and Credit Suisse, have already collapsed. As a result, banks' share prices are falling in global stock markets, and its impact has also affected the stock market of Bangladesh. Furthermore, there has not been much good news about the banking sector in the country in recent years, with more negative news prevailing. There is a negative campaign among investors regarding banks' shares.

Earlier, the share price of Global Islami Bank, another new-generation bank that debuted on the DSE on 17 November last year, could not even touch the face value since the beginning of trading. 

As a result, investors who bought primary shares of the lender face losses. Even they cannot sell these shares due to the floor price.

This experience kept investors away from investing in bank initial public offerings (IPOs), said industry insiders.

Not only a new IPO, but share prices of half of the listed banks have been hovering around the face value since the stock market debacle in 2010.

Out of nine new-generation banks that received licence in 2013, only four got listed on the stock market. The share prices of two of them remained below the face value, while one is trading at face value and another above face value.

The shares of Union Bank and Global Islami Bank are trading below face value when South Bangla shares are trading at face value and those of NRB Commercial Bank are trading above the face value of Tk10.

Reluctance to subscribe of Midland Bank shares

Some 26% of the primary shares of Midland Bank have remained unsold despite the good financial performance of the new-generation lender, reflecting a depletion in investor confidence in bank shares that were the most lucrative stocks a decade ago.

This is the first time in the stock market history that the IPO of a bank remained unsubscribed amid a series of loan scams, rising default loans, and weak share performance in the stock market. 

Also, it is the first time since 2006 that any IPO has remained undersubscribed.

The entire banking sector's weak performance eroded investor confidence, affecting the IPO of Midland Bank, which had a low default loan rate of 2.79% as of December last year when the industry average default rate was 8.16%, according to the central bank data.

According to the IPO subscription of Midland Bank that ended on 28 February this year, primary shares worth more than Tk18 crore of the bank remained unsold, while its IPO size was Tk70 crore – Tk5 crore to its own employees, Tk16.25 crore to the eligible institutional investors, and Tk48.75 crore to the general public. The unsold shares were taken by its five underwriters.

Md Sayadur Rahman, president of the Bangladesh Merchant Bankers Association, earlier told The Business Standard that Midland Bank did not deserve the weak response as it only asked for the face value of Tk10 per share and, more importantly, is a better managed one compared to many of the new generation banks.

Later last year, retail investors did not fully subscribe to the shares offered by Global Islami Bank and the eligible institutional investors grasped it all to offer the new generation bank a happy ending to the IPO journey.