The Farmers Bank Limited (FBL), a fourth-generation private bank, has proposed to sell shares worth Tk355 crore to Investment Corporation of Bangladesh (ICB) in order to meet its capital shortfall.
However, the board of directors of ICB is unwilling to buy shares of the Farmers Bank, owned by former minister MK Alamgir, as the directors think that it will be risky to pour funds into a troubled bank. The Collective Bargaining Agent (CBA) members of ICB have opposed the investment plan.
The FBL is going through a severe cash crunch, which has been caused by their aggressive loan disbursement by violating rules. Nevertheless, the government is planning to provide financial support to the ailing bank.
Recently, in a letter to the ICB management, the FBL offered to sell the shares. As per the proposal, the FBL urged the corporation to buy shares through both Unit Fund and ICB in equal proportion.
The proposal was made after a decision was taken by FBL to raise its capital, and as part of that strategy, the bank wants to sell its shares to raise capital through private placement.
Seeking anonymity, a high official from ICB said: “Board members and high officials of the state owned organization are heavily opposing investing in troubled banks, as they think the banks might not be able to repay.
“They have also asked how the dividends for the investors of unit holders are going to be offered,” he added.
If ICB were to buy shares worth Tk355 crore, it would adversely impact ICB’s investment in the capital market, as it has to sell shares at a lower rate than its purchase price.
“This may create a shortage of cash flow in investment in the stock market,” said another official, preferring not to be named. “Unit holders will be deprived of dividends, as the bank will not be able to offer dividends in its times of financial crisis.”
On January 21, in a project evaluation committee meeting held by ICB, it was said that if ICB buys FBL shares of Tk355 crore, its investment in the bank will stand at Tk400 crore – which is 26.67% of the bank’s initial paid capital of Tk1,500 crore.
This would be a violation of Bank Company Act 1991, as it states that a bank can only invest 10% capital in a single company.
Currently, the ICB has an investment of Tk60 crore in the Farmers Bank. It has bought 4.50 crore shares at a rate of Tk13.33 per share, with a premium of Tk3.33 each.
On the other hand, it has another investment of Tk107 crore as FDR which they are unable to pay back.
Sources at the ICB and the Ministry of Finance told the Dhaka Tribune that the Bangladesh Bank and the ministry had been putting pressure on the ICB to buy shares of FBL.
On Thursday, ICB managing director was called to the ministry to discuss the issue and find a solution to it.
Last week, Finance Minister AMA Muhith said that initiatives are being taken to save Farmers Bank Limited. However, he did not clarify as to how it would be done.
Terming bank failure as “horrible” for the country, Muhith assured that the government will not allow any bank to fail.