Bangladesh Bank approves Tk 30bn loan for ICB

The institution's chief expresses concerns over high interest rate and plans to request lower terms

Bangladesh Bank has approved a Tk 30bn loan for the Investment Corporation of Bangladesh, or ICB, to help ease its liquidity crunch and enhance its investment capacity in the stock market.

The decision was communicated to the state-run investment body on Wednesday.

While the interest rate has been set at 10 percent per annum—lower than the current deposit and loan rates in the country—the ICB had hoped for a lower rate.

The central bank's current policy interest rate is 10 percent, increased periodically to curb inflation.

The government has guaranteed the loan, which means if ICB fails to repay, the government will cover the cost.

On Nov 7, the finance ministry informed Bangladesh Bank of the government's agreement to act as the loan guarantor.

The ICB chairman Prof Abu Ahmed expressed his dissatisfaction with the high interest rate.

“The rate is set according to the policy rate, but if it increases further, we will face difficulties. We will soon contact the finance ministry to request a reduction in the rate and more relaxed terms,” he told bdnews24.com

Currently, special funds managed by the central bank, such as refinancing schemes, use the bank rate of 4 percent as the benchmark.

Despite increases in the policy rate, repo, special repo, and reverse repo rates in recent months, the bank rate has remained steady.

The government's loan guarantee is set for 18 months from the date of disbursement.

According to the guarantee letter, if the ICB defaults on the loan, the government will not use the profit from Bangladesh Bank to offset any unpaid or outstanding debt or interest.

The ICB chief Abu said it holds some high-interest deposits, for which it pays nearly Tk 9 billion in interest annually.

The institution plans to discontinue a portion of these high-interest deposits, while gradually investing the remaining funds in the stock market.

After the fall of the Awami League government on Aug 5, the Dhaka Stock Exchange, or DSE, saw a rise in transactions and index, but this upward trend lasted only four working days.

From Aug 14, the market began to decline, with investors witnessing a 100-point drop in a single day.

The ICB asked the interim government for a loan, citing liquidity constraints and its inability to make further investments.

The loan application was reviewed in a meeting on Oct 17, headed by the commerce advisor, with the governor, the secretary of the Financial Institutions Division, and the Chairman of the Bangladesh Securities and Exchange Commission, or SEC.

Following the meeting, the caretaker administration agreed to approve the loan.