Prime Bank Limited’s board of directors has agreed to sign a memorandum of understanding (MoU) with Union Capital Limited to explore the opportunity for a potential collaboration between the two institutions, according to a stock market filing.
The plan is subject to regulatory approvals, the lender said.
When contacted, Prime Bank Company Secretary Tanvir A Siddiqui declined to share details of the collaboration plan.
Sources at the bank, however, told The Business Standard that the planned collaboration aims to provide Union Capital with a turnaround opportunity, giving the struggling non-banking financial institution (NBFI) a helping hand in securing funds to continue. its operations. He will also help Union Capital increase its revenue by exploring new businesses and regaining the trust of customers.
Prime Bank chief Azam J Chowdhury said last month that the bank was buying shares in Union Capital to qualify for a seat on its board, subject to regulatory approval.
Union Capital, whose chairman of the board is appointed by EC Securities, a company founded by Chowdhury – the equity brokerage arm of the East Coast Group – is failing to repay its large depositors despite the deadline.
To overcome the situation, alongside new funding, it is trying to convert some of the depositors’ money into equity, subject to agreement with customers and approval from regulators, sources said.
Taking over stock market operations from Hong Kong-based Peregrine Capital and obtaining an NBFI license from Bangladesh Bank, a group of local entrepreneurs established Union Capital in the late 1990s.
It entered the merchant banking business in the early 2000s and has remained more focused on capital market operations than leasing or lending business.
Its IPO in 2007 was a great success as the capital market was a profitable business in the then bull market which continued until the end of 2010.
But the stock market crash of 2010-2011 ruined everything, as the margin loans it disbursed among equity investors to buy more stocks for leveraged gains soured.
Later, the brokerage and merchant banking operations of Union Capital were spun off, and the main NBFI increased traditional lending in the mid-2010s.
But that didn’t help at all as the new term loans were mostly given to large corporations which then defaulted.
In 2019, Union Capital suffered losses for the first time due to soaring provisions against uncollectible assets. It continues to operate with even greater losses due to the non-collection of bad debts and the inability to repay depositors even after maturity.
Due to the failure, the Bangladesh Bank in late 2021 banned Union Capital from collecting deposits of more than Tk 1 crore without prior approval from the central bank, while new lending was automatically stopped.
The auditor in his 2021 report expressed concern about the company’s ability to survive in business in the coming days, while the net asset value of each share fell to 8.54 Tk at the end of June. as the company’s annual losses rose to nearly its share capital.
Hoping to make a comeback, shares of Union Capital on the Dhaka Stock Exchange rose 63% to above par in August and corrected 3.4% on Thursday to close at 11.5 Tk.