Role of Investment Corporation of Bangladesh in the Development of Capital Market: Opportunities and Challenges

Abstract

Investment Corporation of Bangladesh (ICB) is one of the renowned investment banks in Bangladesh. As an investment bank, ICB has been performing its merchandising and financial assistance operations since its inception. ICB exists for financial and other activities for capital market development and industrialization. It includes: (i) Direct participation in equity; (ii) Purchase of shares; (iii) Lease financing; (iv) Venture Capital financing; (v) Advance against equity; and to act as trustee as well as custodian to the issue of debentures, bonds, mutual funds; etc. By innovating new opportunities ICB can enhance its activities as well as can improve the condition of capital market of Bangladesh. A comprehensive study is needed to evaluate the performance of ICB. The dynamics of capital market is changing gradually. To adapt this changing environment it is needed to adapt new policies and activities. In this regard an in depth study is needed to update the activities of ICB. Proper dissemination of research-based information is also absent in the capital market sector. A lack of capital market friendly policies, fluctuation in foreign currencies, fluctuation of bank rates, a shortage of information on trading and many other issues are hindering the development of capital market. To overcome this problem research based data is necessary. Moreover, recent changes in world economy and, price hike are affecting the development of capital market and for these reasons ICB may face some challenges in the coming years. To, address the problem such type of study is required. The main purpose of the study is to evaluate the role of ICB in the development of capital market in Bangladesh and the related prospects and challenges. There are some research objectives of this study. The principal objective of the study is to examine the role of Investment Corporation of Bangladesh in capital market development and to explore the opportunities and challenges. There are some specific objectives which are- (1) To analyze the initiatives of ICB for capital market development; (2) To explore the opportunities of ICB in developing capital market; (3) To trace the challenges of ICB in capital market development; (4) To analyze and examine the growth trend of capital market in Bangladesh; (5) To evaluate the development and measure the performance of ICB; and (6) To help in taking measures for improving the performance of ICB. Content analysis method has been used in this study. The researcher has used the documents of ICB and capital market of Bangladesh to evaluate the role of ICB in capital market development. Both qualitative and quantitative interpretations were needed for the present study. The present study has exclusively used this method by compiling the data, of last 10 years (2001-2011) of DSE, CSE, ICB and other related financial organizations. After collected data, the researcher edited the data and used the SPSS software for analysis. To make the data more meaningful, these data were analyzed in tabular forms, percentages, ratios, mean, and time series and in some statistical forms according to their suitability and necessity of the study. The key findings of the study are as follows. In analyzing the general growth of capital markets in Bangladesh, variables that have been known to determine growth were selected. Key indicators of growth include Market capitalization, Percentage of GDP, Investments through IPO, Turnover in primary and secondary markets, and the growth of accounts. From the study findings, it is found that the paid up capital has been steadily rising. From around the year 2006, ICB has been performing much better as seen from its net profits exceeding the paid-up capital. Since the estimates of total income and Net profit are positive, so with the increase of these, Market Capitalization will Increase. If the performance of ICB improves continuously, it helps the growth of our capital market to a great extent. Different activities of ICB influence the activities of our capital market in various ways. Growth trends of income, earning per shore, return on equity, resources and financial results (expenditure) of ICB lead to the growth of our capital market. So, there is a positive correlation between the growth of activities of ICB and that of the activities of our capital market. This is how the role of ICB in the development of our capital market is visible and justified. It is found that total income of ICB has positive role in the development of capital market in Bangladesh. It is also found that net profit of ICB has positive role in the development of capital market in Bangladesh. Analyzing the findings of the study the researcher concludes that ICB has positive role in the development of capital market in Bangladesh. On the basis of the study the researcher has also made some recommendations for the development of the performance of ICB and for the development of capital market of Bangladesh. These are given below. ICB Related: (1) Investing by costly borrowing funds should be reduced. Management may look for source of less costly funds and increase income. (2) Employees should be set up in proper position according to their skill and education background. (3) Dividend policy should be fair to all funds so that the investors may be satisfied. Dividend policy should be on earning basis, not year basis. (4) Unnecessary documentation and levels in the process of withdraw of securities should be eliminated. For these computerization is needed and training is a must. (5) It is needed to reduce difficulties in deposit collection and fund management in the prevailing money market situation. (6) Existing training facilities for the officers and employees of the Corporation is not sufficient. So it is needed to provide necessary training facilities for the officers and staffs. (7) The Corporation needs to develop long-term strategic and risk management planning. To do so, they can develop computer simulation program. (8) ICB needs to adjust competitive strategy as there are lots of competitors already available in the market. (9) ICB Needs to fast of pace in decision making by large institutional and individual investors during bearish trend. (10) ICB needs to introduce innovative policy as the rapid changes in business environment and frequent changes in rules and regulations. Capital Market Related: (1) It is required to build the image of capital market and get back confidence of investors. (2) Company should try to minimize the overvaluation of share price. (3) Company should try to minimize liquidity problem and ICB can provide more loans for the investors with minimum interest. (4) SEC should introduced good and new share in the market. (5) Needs transparency in management. (6) It needs proper knowledge and training regarding stock market. (7) The key to existence of secondary markets is an efficient market trading place, where buying and selling is done efficiently and liquidity is maintained in the market place. To ascertain this efficiency and liquidity, the secondary market needs enforceable trading rules, an efficient transaction/settlement/clearing mechanism and the existence of a securities Finance House to support margin trading. (8) The security market system in Bangladesh needs professionally trained government officials (in security market areas), financial accountants, legal specialists specializing in credit analysts, market operators, fund managers, investment educators, journalists who understand security markets and other related security markets professional. (9) There is further a need for investor education also. The easiest means is an educational video produced combined by the ICB, DSE and Ministry of Finance, which explains what shares and bonds are, what is a mutual fund, what is a stock exchange. What is an investor account, how can one buy and sell easily, and how the government will protect the investors against mal practice of the market operators. (10) Improve economic environment, where monetary policy and interest rate structure is such that a risky capital market cab exists, and the fiscal policy is attractive to the company seeking funds and to the investor providing funds, in the form of tax benefits. Capital markets are financial markets for the buying and selling of long-term debt or equity-backed securities. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or government making long-term investments. To ensure sound economic development a sound capital market is very essential. The present scenario of the capital market is very horrific and unstable. As a state owned investment company of Bangladesh ICB can play a vital role to make a sound capital market. In this regard an evaluation of the performance of ICB was necessary. The present study has evaluated the performance of ICB in Capital market development. Moreover, it has opened a new branch of knowledge and approach to upgrade the performance of ICB. As it is known, the main objective of ICB was to encourage and broaden the base investment, to develop capital market and to mobilize savings from the surplus unit. It is observed that the performance of ICB was satisfactory. In almost all the areas, ICB’s performance was improving in comparison to the past few years. Dividend payment, Net operating income, Operating profit, the amount of its investment in the main operational areas has also been increased. In terms of lease financing, Project commitments etc. the amount of allocation is also increasing. By playing significant role in the above field ICB has emerged as a key role player in the capital market of Bangladesh.