ICB narrows investment target in stock market for FY25

Infographics: TBS

The Investment Corporation of Bangladesh, whose primary mandate is to support the capital market, has reduced its investment target by approximately 30% in the stock market for the current fiscal year 2024-25 due to a lack of financial support sources.

The state-owned investment firm has finalised an action plan for the ongoing fiscal year to strengthen its support to the stock market. The plan was formalised through the signing of an annual performance agreement (APA) with the Ministry of Finance on 27 June.

As per the agreement, ICB's investment target for this fiscal year has been set at Tk1,000 crore, down from Tk 1,400 crore in the previous year.

It also reduced the margin loan disbursement plan by around 30% to Tk250 crore and share trading target by 33% to Tk8,000 crore in the secondary market of the stock exchanges against the previous year.

In its APA document, the ICB stated that several challenges, including a market slowdown, high cost of funds, liquidity crunch, lack of financial sources, non-recovery of margin loans, and over-dependence on the stock market for revenue, have driven the ICB to reduce its targets.

A finance ministry report said that in the last fiscal year, its stock market investment fell over 70% to Tk608 crore compared to the previous year. Its earnings also dropped by 49% to Tk554 crore year-on-year in FY24.

Also, it disbursed Tk230 crore as margin loans and recovered Tk224 crore in the last fiscal year, which was 71% and 69% lower respectively than FY23.

Share trading by the ICB also dropped over 75% to Tk4,498 crore in the secondary market of the stock exchanges, according to the finance ministry report.

To cope up with the challenges, ICB applied to the finance ministry to obtain a Tk5,000 crore low-cost loan for ten years. It has also sought Tk2,000 crore from the Bangladesh Bank as a soft loan.

A senior officer of ICB, seeking anonymity, told The Business Standard, "We are investing in the stock market by borrowing from the bank. That is why our cost of funds is very high. And if this continues, the company will not have any ability to support the stock market."

"We have asked the government for a low interest loan because we need low-cost long-term funds at this point. And the government also has shown sincerity in supporting us. So, we are optimistic about getting the loan," he added.

According to ICB, the corporation has been supporting the capital market through the Bangladesh Bank fund and its own fund since 2010, without considering its own interests.

But in the last few years, indices of the stock exchanges have faced continuous fall. In this situation, ICB took a loan of Tk11,000 crore from various banks and institutions at high interest rates to support the market. As a result, the cost of funds has increased. ICB has been paying the huge interest on loan quarterly.

As a result, it incurred a loss of Tk267 crore in the July to March period of the fiscal year 2023-24. During the period, its consolidated negative earnings per share stood at Tk3.08.

ICB attributed the losses primarily to two factors in its financial statement. It said, "Firstly, as interest rates increased, the ICB found itself obligated to pay higher interest to its depositors."

"Secondly, ICB faced difficulties in selling shares due to the imposed floor price. Despite the regulator lifting this restriction, the company continued to encounter challenges in selling shares."

In the July to March period, the interest income of the company stood at Tk136.71 crore. 

However, the company has to pay about Tk675 crore in interest to its depositors and lenders, bringing down its net interest income to around negative Tk539 crore. 

During the period, its capital gain dropped by 60% to Tk105 crore from Tk261 crore compared to the same period of the previous year.

Its dividend income also decreased by 10% to Tk284 crore from Tk316 crore compared to a year ago.

Its shares closed at Tk58.40 yesterday, dropping 1.68% from the previous session at the Dhaka Stock Exchange.