Prime Bank moves for collaboration with Union Capital

The board of directors of Prime Bank Limited has consented to sign a Memorandum of Understanding (MoU) with Union Capital Limited to explore the opportunity for potential collaboration between the two institutions, according to a stock exchange filing.

The plan is subject to regulatory approvals, the lender said.

When contacted, Prime Bank Company Secretary Tanvir A Siddiqui declined to share any details of the collaboration plan.

Sources at the bank, however, told The Business Standard that the planned collaboration aims to offer Union Capital an opportunity for turnaround, giving the struggling non-bank financial institution (NBFI) a hand in securing some funds to continue operations. It will also support Union Capital to increase its income through exploring new businesses and regaining the clients' confidence.

Last month, Prime Bank Director Azam J Chowdhury said the bank was buying Union Capital shares to be qualified for a seat on its board of directors, subject to regulatory approval.

Union Capital, having its board chairman nominated by Chowdhury-founded EC Securities – the stock brokerage arm of the East Coast Group – is failing to repay its large depositors despite maturity.

To overcome the situation, alongside fresh funding, it is trying to convert some of the depositors' money into equity which is subject to agreement with clients and approval of regulators, said sources.

Taking over the equity market operations from Hong Kong-based Peregrine Capital, and securing an NBFI licence from the Bangladesh Bank, a group of local entrepreneurs began Union Capital in the late 1990s.

It entered the merchant banking business in the early 2000s and remained more focused on capital market operations than on leasing or lending businesses.

Its initial public offering in 2007 was a great success as the capital market was a profitable business in the then bull market that continued till the end of 2010.

But the 2010-11 market crash made it all sour as the margin loans it disbursed among stock investors to let them buy more shares for leveraged gains turned bad.

Later, Union Capital's brokerage and merchant banking operations were split, and the core NBFI increased traditional lending in the mid-2010s.

But it did not help at all as the fresh term loans were mostly given to large corporations who later defaulted.

In 2019, Union Capital incurred losses for the first time because of soaring provisions against bad assets. It still continues operation with even bigger losses amid non-recovery of bad loans, and inability to pay back depositors even after maturity.

Due to the failure, the Bangladesh Bank in late 2021, barred Union Capital from collecting deposits over Tk1 crore without the central bank's prior approval, while fresh lending has been automatically stopped.

The statutory auditor in its 2021 report expressed its concern regarding the firm's ability to survive in business in the coming days, while the net asset value against each share shrunk to negative Tk8.54 at the end of last June as the company's annual losses mounted to near its paid-up capital.  

With a hope for making a comeback, Union Capital shares in the Dhaka Stock Exchange rose 63% to above the face value in August and corrected 3.4% on Thursday to close at Tk11.5.