FE Report (January 25, 2011)
The Investment Corporation of Bangladesh (ICB) and its subsidiaries have bought shares worth around Taka 7.0 billion in the last four trading days of the stock exchanges, prior to suspension of operation in the bourses on January 20 last, officials of the state-managed investment institution said.
But the market crash could not be prevented despite such purchase operation by the ICB and its subsidiaries, known as "the investor of last resort".
"We are doing all we could to shore up the stock market. In fact, we have buying shares for more than a month," said a senior ICB executive.
The corporation and its subsidiaries alone bought 23-24 per cent of the shares sold in the past trading days -- three of them were halted after the benchmark index at the Dhaka Stock Exchange crossed it's the then circuit-breaker threshold at 225 points.
Normally, the state-owned investment bank accounts for 10 per cent of the trading that takes place at the Dhaka Stock Exchange (DSE). In the last six months it traded some Taka 230 billion worth of shares -- the best performance among the institutional investors.
"The problem is we are the only big institutional player who have been active over the last few sessions," he said. "If others follow us forcefully in the market, the slide can be stopped and confidence can be restored."
He spoke on condition of anonymity as he is not "authorized" to talk to the media.
The Bangladesh Bank has pumped Taka 4.00 billion to the market through the ICB and its subsidiaries in a bid to halt the plunge.
"But it took us only two days to spend the money. If you have to continue purchase for weeks, we may face a severe liquidity problem," he said.
ICB's concern is that the risky investment in a slumping market may take a toll on its balance sheets. In the years after the 1996 crash, it suffered a massive erosion in profit.
This time Taka 4.00 billion the BB has lent is tagged with five per cent interest rate and will have to be paid back in 90 days.
"If the slide continues for years, we have to forget the kind of results we have seen over the last four years. The honeymoon seems to be over," said the official.
The last time it swung into buying binge in the aftermath of the 1996 stock crash, the ICB purchased shares for years to prop up a plunging stock market.
It took ten years to see the market give the kind of return it has been looking for. The last two consecutive years they declared hefty dividend, largely to the government.
Amid a new stock crash, the lone state-owned investment bank found itself in a familiar role: buying shares at the behest of the government to buttress a slumping market.
The market is still overheated -- the average price-earning ratio is around 23, up from standard 15 -- and any purchase at this time could easily slip into the red, according to some analysts.
Still all eyes will be on the "investor of last resort" as trading at the stock market resumes today (Tuesday) after two days of suspension. ICB officials said they would be active as ever.
"We shall be playing our usual role: bringing stability back in the market," M Fayekuzzman, its soft-spoken managing director said, in a steely voice.
"If there is any injury in the market, our role is to repair it," he said, adding the bank has been planning some "long-term" measures to boost the market.
He did not elaborate what the long-term steps are. But he added the target was to make the market "fully operative".
"The ICB has been created to develop the capital market and broaden the base of investment. And that's the role we are now playing," he said.
The Investment Corporation of Bangladesh (ICB) and its subsidiaries have bought shares worth around Taka 7.0 billion in the last four trading days of the stock exchanges, prior to suspension of operation in the bourses on January 20 last, officials of the state-managed investment institution said.
But the market crash could not be prevented despite such purchase operation by the ICB and its subsidiaries, known as "the investor of last resort".
"We are doing all we could to shore up the stock market. In fact, we have buying shares for more than a month," said a senior ICB executive.
The corporation and its subsidiaries alone bought 23-24 per cent of the shares sold in the past trading days -- three of them were halted after the benchmark index at the Dhaka Stock Exchange crossed it's the then circuit-breaker threshold at 225 points.
Normally, the state-owned investment bank accounts for 10 per cent of the trading that takes place at the Dhaka Stock Exchange (DSE). In the last six months it traded some Taka 230 billion worth of shares -- the best performance among the institutional investors.
"The problem is we are the only big institutional player who have been active over the last few sessions," he said. "If others follow us forcefully in the market, the slide can be stopped and confidence can be restored."
He spoke on condition of anonymity as he is not "authorized" to talk to the media.
The Bangladesh Bank has pumped Taka 4.00 billion to the market through the ICB and its subsidiaries in a bid to halt the plunge.
"But it took us only two days to spend the money. If you have to continue purchase for weeks, we may face a severe liquidity problem," he said.
ICB's concern is that the risky investment in a slumping market may take a toll on its balance sheets. In the years after the 1996 crash, it suffered a massive erosion in profit.
This time Taka 4.00 billion the BB has lent is tagged with five per cent interest rate and will have to be paid back in 90 days.
"If the slide continues for years, we have to forget the kind of results we have seen over the last four years. The honeymoon seems to be over," said the official.
The last time it swung into buying binge in the aftermath of the 1996 stock crash, the ICB purchased shares for years to prop up a plunging stock market.
It took ten years to see the market give the kind of return it has been looking for. The last two consecutive years they declared hefty dividend, largely to the government.
Amid a new stock crash, the lone state-owned investment bank found itself in a familiar role: buying shares at the behest of the government to buttress a slumping market.
The market is still overheated -- the average price-earning ratio is around 23, up from standard 15 -- and any purchase at this time could easily slip into the red, according to some analysts.
Still all eyes will be on the "investor of last resort" as trading at the stock market resumes today (Tuesday) after two days of suspension. ICB officials said they would be active as ever.
"We shall be playing our usual role: bringing stability back in the market," M Fayekuzzman, its soft-spoken managing director said, in a steely voice.
"If there is any injury in the market, our role is to repair it," he said, adding the bank has been planning some "long-term" measures to boost the market.
He did not elaborate what the long-term steps are. But he added the target was to make the market "fully operative".
"The ICB has been created to develop the capital market and broaden the base of investment. And that's the role we are now playing," he said.
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