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Bank share prices continue to soar

  • Published at 11:13 pm October 7th, 2017
  • Last updated at 12:54 am October 8th, 2017
Bank share prices continue to soar
Share prices of banks at Dhaka Stock Exchange (DSE) are still rising and dominating the turnover, which according to stockbrokers and analysts is an unusual behaviour. They have also warned the investors to be cautious while pumping money on banks' stocks. According to DSE data, as of Thursday, the prices registered up to 83% rise in last three months. On the other hand, banking sector contributed 52% of total turnover of last week. Stockbrokers and experts attributed for this the proposed amendment of the Bank Company Act, which is likely to increase the number of directors from two to four from a single family in a bank's board and also extend the tenure of directors. The Bank Company (Amendment) Act-2017 was placed in parliament on September 12 for passage. “Stocks prices of banks have seen sharp rise in recent time as investors took position on banks hoping further jump in share prices. They were inspired by the proposed amendment of Bank Company Act,” Ahmad Rashid Lali, president of DSE Brokers Association (DBA), told the Dhaka Tribune. According to Lali, there was a perception among the investors that people will buy more shares to become a director once the amendment is passed and the prices will go up further. “The prices are much higher than its financial performance. This is an unusual behaviour and it’s not a good sign for the market. Rise of share index based on a single sector is riskier,” Abu Ahmed, honorary professor at Dhaka University’s Economics Department, told the Dhaka Tribune. He said it was more concerning that the share prices of some banks, which have large amounts of bad loan, increased irrationally. On Thursday, out of 30 enlisted banks, shares of one bank saw a negative trend, while three remained unchanged. Twenty-six other banks registered rise in prices. Of them, Rupali Bank had posted the highest price gain - 83.28%. Last week, the total turnover at DSE was Tk3,670 crores, of which 52% were from the banking sector. As a single sector, banking sector posted 5.27% rise in prices. Former adviser to a caretaker government ABM Mirza Azizul Islam told the Dhaka Tribune: “The banking sector’s overall performance is unsatisfactory. Investments should be made based on the performance and price-earnings ratio of respective banks.” He said: “Investors will lose money if they invest on banks’ stocks depending on the amendment of the Bank Company Act.” The former chairman of Bangladesh Securities and Exchange Commission explained that it would not increase the profitability of banks rather reduce the good governance. “Investors should not invest based on rumour.” A private bank director, requesting anonymity, told the Dhaka tribune: “For the sake of general investors, the government should not allow more than two directors from one family as it would increase the power of a certain group. That may affect the investors' interest.” On the other hand, to ensure a strong institutionalisation in the banking sector, it would be better to not increase the number of directors as well as tenure for directorship, the banker added. Meanwhile, experts also blamed supply shortage of quality stocks due to the recent dominance of the banking sector in the recent rally. “If you look into the newly listed companies, there are not much good quality stocks and because of that investors are choosing the banks to invest,” said Abu Ahmed, a stock analyst. He also added: “There are also few asset managers who started operating recently may have created a demand for the shares of banks, raising the prices.”