The Investment Corporation of Bangladesh (ICB), one of the largest institutional investors in the country’s stock market, has framed a new investment policy for itself to invest in the capital market to counter allegations of investing in weak and junk stocks.
With a plan to strengthen its financial base, which, experts say, is weakening day by day owing to bad investment choices, and to bring transparency and accountability in investments, the state-owned investment banker has adopted the policy, effective from 1 July.
According to the new policy, the ICB will not sell its held shares in portfolio at losses, and will not buy Z category stocks and shares from loan defaulters. It will also not buy stocks if it does not get adequate information regarding business operation.
Besides, the ICB will not hold over 10% stake of any company of its paid-up capital, as per new policy.
However, if any previously purchased securities are transferred to the Z category, investment in Z category shares may be made as a strategy to reduce the average purchase price, if necessary, the policy reads.
In the case of investing in any mutual funds, and exchange traded funds (ETFs), a new products for capital market, the investment will be equal to or less than that of the sponsor.
Also, if ICB acts as a trustee or custodian of any listed or non-listed mutual fund, ICB or the unit fund will not invest in that fund.
The ICB reshuffled portfolio management committee, which has been mandated to buy and sell securities, and invest in the initial public offering, qualified investors offer, and right shares, to manage portfolios based on the reports of its research team.
The ICB, which is primarily mandated to support the stock market, invest in the capital market taking government support or loan from the state-owned banks.
At present, as the ICB has been facing funds shortage to support the capital market amid downward situation, it is hunting some fresh funds, and wrote to the Bangladesh Bank (BB) seeking Tk5,000 funds support to invest in the capital market and repay its short term loans.
In this regards, the central bank advised it to ensure sovereign guarantee from the finance ministry to take fund support, which is under process, said ICB officials.
A modern policy has been developed to ensure the transparency and accountability of ICB’s investments, Suborna Barua, chairman of ICB, told TBS. “This is the first time, we have made a compact and transparent investment policy to investment in the capital market.”
The ICB will invest in the capital market in light of the new policy from now, which will help the investment banker to strengthen its financial base, he added.
“We have devised a policy not to invest in the Z-category shares. The ICB generally do not invest in junk shares. Although we have some investments in junk shares now, we will gradually exit from such investments.”
Investment oversight team to monitor investments monthly
To execute the policy and increasing supervision on investments, the ICB formed an investment oversight committee with four members to monitor investments in the market made by the portfolio management committee, led by its chairman, Suborna Barua, a Dhaka University professor at the banking and insurance department.
The oversight committee will sit every month after the meeting of investment audit committee, which is mandated to audit the investments and buy-sell of shares every months.
Suborna said, “The investment oversight committee will take care of investment made protecting the interest of ICB, the government, and the market as a whole.
The investment audit committee will conduct monthly audit of all investment decisions in a month to ensure investment decisions are made and implemented as per the investment policy, he said.
If any discrepancy is found, the committee will directly report to the investment oversight committee which later will suggest actions to the board, Suborna said.
“Also, utilisation of any special fund received by ICB from the government in future will be governed by this policy as per the guidance of the Investment Oversight Committee,” he added.
Portfolio management committee also under supervision
The ICB plans to increase supervision on the portfolio management committee for the transparency, and proper management of its portfolio.
According to the policy, no member of the committee, nor any dependent or family members, can take margin loan against BO account maintained with the corporation or its subsidiary companies.
After the implementation of this policy, updated BO account statements must be submitted to the Managing Director of the corporation on a monthly basis.
No member can serve on the portfolio management committee for more than three consecutive years.
Suborna also said, “Some new aspects have been introduced in the new investment policy, which never existed before. Members of the portfolio management committee cannot serve for more than a three-year term.”
Meanwhile, the ICB 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.
According to its an annual performance agreement with the Ministry of Finance, ICB’s investment target for this fiscal year has been set at Tk1,000 crore, down from Tk1,400 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 the July to March period of 2023-24, the ICB incurred a loss of Tk267 crore. During period, its interest income 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 Tk60.60 each on yesterday on the Dhaka Stock Exchange.
