Bangladesh Securities and Exchange Commission (BSEC) Member Helal Uddin Nizami yesterday blamed the Bangladesh Bank for failing to regulate the country’s merchant banks properly in 2009 and 2010, which eventually led to the collapse of the capital market.
He made the comment while addressing a seminar – Economic Rationale for the Separation of Conventional and Merchant Banking – jointly organised by Bangladesh Young Economists Association and Emerging Credit Rating Limited in the capital.
State Minister for Ministry of Finance and Planning MA Mannan was the chief guest of the event.
Speaking at the seminar, Helal noted that the loan margin ratio rule for investors was 1:2 between the year 2008 and 2010. As per the rules, an investor was allowed to take a loan of Tk2 lakh to the maximum against his one lakh capital.
“But, we found that merchant banks provided up to Tk2 crore to an investor against his capital of Tk10 lakh, where he was only eligible for only Tk20 lakh,” he added.
Blamed the central bank for its inefficiency in regulating of commercial banks, he also claimed that banks made 15% to 35% of their profit from capital market by huge investing through merchant banks violating the exposure limit.
However, the over-investment of these commercial banks were not being monitored by the central bank at that time, Helal said.
“The capital market would have not collapsed if the central bank had proper supervision over the banks’ exposure level,” he said.
The BSEC member further stressed of forming a strong association for merchant banks to contribute to market reforms with the regulatory authorities.
“An association, however, have exists but they have no strong activities in the market.”
He also stressed the separation between retail banking and lending banking instead of separation between investment banking and conventional banking.
Claiming that banks were more interested in retail banking instead of lending due to a rise in defaulters, he further suggested separating retail banking and lending banking instead of separating investment banking and conventional banking.
“Merchant banks have blamed the BSEC for not allowing them to raise their capital through IPO. But, we think that such will cause a conflict of interest as the organisation itself in an issue manager,” he said.
He advised merchant bankers to find out any other process to raise their capital.
However, Bangladesh Bank Deputy Governor Abu Hena Mohd Razee Hassan, who was present at the seminar, did not try to defend the role of the central bank in this regard and instead said depositors’ interest also fell in risk as the bank’s money went to the bubbling capital market through the merchant banks.
He said, the main duty of the Bangladesh Bank is to protect depositors’ interest.
During the open discussion session of the seminar, IDLC Investment Managing Director Md Moniruzzaman claimed that although investment banking has been separated from conventional banking, merchant banks continue to be regulated by both BSEC and the Bangladesh Bank which creates conflicts on various issues.
He also noted that as there were no accounting guidelines for merchant banks, chief financial officers of these organisations are not clear on the accounting norms.
“These merchant banks are also not complying with standard risk management procedures,” he added.
