TDS Desk:

Thirty-one banks suffered combined losses of Tk 3,600 crore from their stock market investments last year, largely because of poor decisions, misuse of funds and a sluggish market.

State-owned banks were hit the hardest, while private commercial banks also reported losses despite being known for better governance in their core banking operations.

Foreign banks, which kept away from the local bourse, escaped unscathed.

The losses were unrealised, which means, the banks have not sold their shares but the value of their holdings has sunk on paper, forcing them to mark down their portfolios.

Market specialists say much of the problem originated from banks betting big on junk stocks, shares in companies with weak track records or years of poor performance.

For example, a number of banks burned their fingers on the Beximco Green Sukuk Bond.

Its market price halved to Tk 40 last year after Beximco Group owner Salman F Rahman was arrested following the political changeover in August 2024. He has been behind bars since then.

Other lenders put money into long-troubled firms such as ICB Islamic Bank and People’s Leasing.

While most banks were forced to set aside provisions to cover these paper losses, three of their market peers, Mercantile Bank, BRAC Bank and Prime Bank, managed to stay in the black from their stock investments.

Toufic Ahmad Choudhury, director general of the Bangladesh Academy for Securities Markets, said banks should tread carefully in equities.

“Banks are not supposed to invest in the share market as the return of this type of investment is uncertain while they deal with fixed liabilities of deposits,” he said.

According to Choudhury, the stock market is a different type of securities, so investment in the stock market should be managed by professionals and trained people.

“Whoever manages the fund, in any way, a bank cannot invest in junk stocks. It is totally unacceptable,” he commented.

Last year, Janata Bank took the biggest hit, losing Tk 400 crore, mainly from the Beximco Sukuk Bond, Bangladesh Fixed Income Fund, Summit Power and Best Holdings.

The lender also holds around Tk 50 crore in junk shares, including AB Bank, ICB Islamic Bank, National Bank, People’s Leasing, Phoenix Finance, Prime Finance, International Leasing and Beximco Ltd.

Sonali Bank followed with Tk 398 crore in losses, Eastern Bank with Tk 353 crore, and Southeast Bank with Tk 326 crore. AB Bank, Exim Bank, National Bank and Agrani Bank each lost more than Tk 200 crore.

Uttara Bank, NCC Bank, Rupali Bank, NRB Commercial Bank and Shahjalal Islami Bank lost between Tk 100 crore and Tk 200 crore each.

Md Mazibur Rahman, managing director of Janata Bank, could not be reached for comment. He did not receive phone calls or reply to messages.

Ali Imam, managing director and CEO of Edge Asset Management, said the poor performance shows a deeper problem in the way banks manage their investment portfolios.

“Banks are the major institutional investors in the stock market, and the pale scenario of their portfolio is showing the behavioural problem of the investors,” he said.

“Even though banks follow good governance in their banking operation, they incurred a huge loss, which is mainly due to their lack of expertise,” said Imam.

He said banks appoint officials who are trained to deal with collateral-based lending, not equity. So, when these officials manage the equity investment, it does not give a good return. Sometimes they invest in some equity where they could not even lend.

The market slumped throughout 2024. The benchmark DSEX index of the Dhaka Stock Exchange (DSE) fell 16 percent, or 1,026 points, last year.

But, Imam said this was not the main reason for the woes of the banks. “Portfolio managers do better even in a dull market scenario,” he said.

The CEO of Edge Asset Management said stock investments require specialised skills very different from money market or foreign exchange management, where bank treasury departments usually focus. Without professionals to guide their strategies, banks risk losing further or missing out on better returns.