The margin loan ratio or credit against stocks has been reset with immediate effect, aimed at minimising investment risks for the market participants.
As part of a master plan outlined by the Bangladesh Securities and Exchange Commission (BSEC) nine-month back, it decided to bring down the credit percentage.
From Tuesday, investors will be entitled to get the loan at 1:1.5 until December 31 this year, cutting down from 1:2 – a ratio that expired on Sunday, according to the BSEC.
The ratio will come down further to 1:1 from January 2014 and will remain effective until June next and from July 2014 it will be 1:0.5, according to the plan.
The margin loan is the amount of loan provided by brokerage houses and merchant banks to the borrowers against the total value of their shares.
For example the 1:1.5 loan ratio means, if an investor has Tk100 in cash or stocks worth Tk10, he or she will be able to receive another Tk150 as credit against the money or securities.
“We have already taken preparation to follow the new margin rule beginning from today,” said MA Hafiz, president of Bangladesh Merchant Bankers Association, told the Dhaka Tribune yesterday.
“The modified margin loan criteria will reduce risks of investors’ investment,” he said, adding that the purchasing capacity of most investors who invested in stocks on margin loans recently went in red because of big price correction.
“Investment without margin loan will help reduce risk substantially for the retailers,” he said.
Asian Development Bank (ADB) earlier recommended the securities regulator to phase out the margin loan as investors who invested in the market taking credit from merchant bankers or brokers or dealers are vulnerable to sustain losses.
Under the present market situation that remained volatile over the months, retailers showed hardly any interest to take margin loans, unlike situations during 2009-2010 when the market was rising, dealers said.
“Everybody with their own fund prefers to short-term investment because of the market volatility,” said a dealer. But investors have a tendency to take loan when the market continues to go up, he said.
