Will ICB kiss goodbye to its Tk668cr deposits in NBFIs?

Bad investment choices have thrown the Investment Corporation of Bangladesh (ICB) into disarray. 

With some Tk668 crore in deposits along with about Tk100 crore in interests getting stuck with 10 non-bank financial institutions (NBFIs) even on their maturity, the statutory corporation has now turned to the Bangladesh Bank for help.

ICB Managing Director Md Abul Hossain told The Business Standard that the NBFIs, in view of their "weak" financial health, were given a one-year time to settle the matured deposits on condition of paying a portion of the interest by September 2021 after an intervention from the central bank.

But only five among the 10 of the NBFIs renewed the repayment terms which also have expired already, which is why the ICB has recently written to the central bank again to encash the matured deposits, he added.

How the crisis began

Founded in 1976, primarily to develop the country's capital market, the ICB has played a pivotal role in developing physical infrastructure, and power, textiles, housing, and service sectors of the country through bridge loans, debenture loans, lease financing, bank guarantees, venture capital financing, advances against equity, investments in preference shares and pre-IPO placement shares, and other initiatives.

According to an ICB report sent recently to the Parliamentary Standing Committee on Government Institutions, the corporation invested Tk2,735 crore in 446 projects as of 30 June last year. The Business Standard has obtained a copy of the report.

But making term deposits in some weak NBFIs in recent years have placed this government institution of immense importance in an uncomfortable situation, as, according to a report by the Comptroller General of Accounts (CAG), close to Tk1,000 crore of ICB funds have got stuck due to irregularities and mismanagement.

ICB officials said the ICB invests its surplus funds in various banks and non-bank financial institutions alongside supporting the capital market.

In keeping with this, the head office and several branch offices of the corporation made fixed-term deposits of Tk668.38 crore in 10 financial institutions in the 2017-18 period at annual interest rates ranging from 9% to 12% amid a downturn in the capital market.

The NBFIs where the ICB has parked its money are People's Leasing and Financial Services, Fas Finance and Investment, International Leasing and Finance, First Finance Limited, Bangladesh Finance and Investment, Prime Finance and Investment, Premier Leasing and Investment, First Finance and Investment, Reliance Finance Investment, and Phoenix Finance and Investment Limited.

But, some of the NBFIs fell into crisis due to loan scams and other irregularities, leaving the ICB's deposit and interest collection uncertain.

Unable to encash its deposits even on their maturity, the ICB sought the intervention of the central bank.

On that basis, in August 2021, a deputy governor of the Bangladesh Bank sat with top officials of the NBFIs and as per the decision of the meeting, the NBFIs were asked to renew the FDR tenure by another year by making partial interest payment by 30 September last.

After receiving the directive, five of the NBFIs paid interest and renewed the FDR for one year.

ICB MD Md Abul Hossain told TBS that the NBFIs are not fulfilling the promises they made after the central bank intervention. The few contracts that have been renewed have also expired, he added.

The Office of the CAG has submitted a report on ICB's fund management activities from FY18 to FY20 to the parliament, in which it says ICB's Tk766.74 crore in fixed-term deposits, including interest, remains unrecovered irregular and risky investments.

According to the CAG report, all investments and interest in the 10 NBFIs remain unrecovered, but the ICB says FDRs with five of the financial institutions are regular, while the process of investment and interest collection from the remaining institutions is ongoing.

According to the CAG report, the local office of the ICB made the highest FDR of Tk198.40 crore in NBFIs, while the FDR of the head office is worth Tk127.93 crore, Chattogram branch Tk75 crore, Khulna branch Tk42 crore, Rajshahi branch Tk125.57 crore, and Sylhet branch Tk132.79 crore.

The feeble NBFIs 

Investigations have found that the condition of some of the institutions which are not able to pay off ICB deposits is very bad.

People's Leasing, International Leasing, Premier Leasing, and First Finance are among these institutions that are in major crisis due to irregularities and loan scams.

These NBFIs cannot pay off the term deposits they have received from various institutions as the majority of their outstanding loans are now in default status.

According to data obtained from the Bangladesh Bank, the cumulative sum of defaulted loans of these four institutions till June 2022 is Tk6,141 crore.

Individually, the amount of defaulted loans of International Leasing is Tk2,900 crore, Fas Finance is Tk1,723 crore, Premier Leasing Tk766 crore, Fareast Finance Tk475 crore, and First Finance Tk277 crore.

When asked about their inability to encash ICB's FDR, International Leasing and Investment Limited Managing Director (current charge) Md Mashiur Rahman told TBS, "We have been unable to pay back ICB funds due to an unusual rise in non-performing loans and liquidity crisis.

"We are renewing the term and are planning to offer them company shares."

Alleged anomalies 

According to a directive of the Policy and Financial Incentives wing of the Financial Institutions Division, the ICB must deposit its money in a bank(s) after encashing FDRs with an NBFI but it did not comply with the instruction, says the CAG report. 

In this regard, the ICB told the CAG that it could not follow the directive as NBFIs failed to return the FDR money.

The CAG report urges the ICB to take prompt measures to recover the money.

There have been irregularities in the use of government resources and money, says the CAG report, adding that it conducted the audit to bring those responsible behind the irregularities to account.

Irregularities identified by the CAG include overvaluation of co-collateral and investment in companies outside the capital market, purchase of shares in pre-IPO (initial public offering) placement without collateral, and non-payment of dividends.