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Stock market intermediaries seek Tk10,000 crore govt fund

  • Published at 08:29 pm October 27th, 2019
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File photo of Bangladesh Securities and Exchange Commission Office in Dhaka Syed Zakir Hossain/Dhaka Tribune

Managing director and chief executive officer of 18 broker and merchant banks are signatories to the proposal

Institutional investors have sought Tk10,000 crore from the government to support the retail investors who have incurred losses in their stocks they had bought on margin loans.

In this connection, top financial investors (broker and merchant banks) in the capital market sent a letter to finance minister, BSEC chairman and Bangladesh Bank governor last week seeking the amount in the form of either credit or financial support. 

The Bangladesh Securities and Exchange Commission (BSEC) received the letter on Sunday, high officials have confirmed.

Managing director and chief executive officer of 18 broker and merchant banks are signatories to the proposal. 

As per the proposal, the fund should be for a period of six years at a flat interest rate of 3% and half yearly payment of interest. 

“We have urged the government to develop a fund namely 'Capital Market Support Fund for Market Intermediaries,” Managing Director of EBL Securities Limited Sayadur Raman told Dhaka Tribune.

"We have requested the government to give the fund directly to the stock market intermediaries for a stable, growing and vibrant stock market," CEO of Dhaka Bank Securities Mohammad Ali said. 

“We believe that with the injection of this fund the capital market will become effective and contribute to the overall economy," he said.

They said the proposed fund would be used to support the retail investors having negative shares as well as the intermediaries having unrealized loss in dealer account which occurred due to margin loan disbursements and capital market investment.

The market capitalization at Dhaka Stock Exchange (DSE) dropped by 15.51% or Tk65,411 crore in the last nine months of this year. The prime index, DSEX lost about 1,250 points from its highest hit of 5,950 points, since January 24 this year.

DSEX has been witnessing a steep fall in recent times due mainly to liquidity crisis. Experts say there are four major factors behind the shortage of liquidity in the capital market.

The reasons are soaring non-performing loans (NPLs) in banks, enhanced bank borrowing by the government due to poor revenue collection, lack of institutional investors, and negative net foreign investment.

In June this year, the state-owned Investment Corporation of Bangladesh (ICB) made a set of recommendations to the government including offering the money whitening facility for the stock business and creation of a Tk5,000 crore 'market support fund' to revive the ailing capital market.

But the government did not consider the recommendations sent to the finance ministry before current national budget. 

In 2013, the ICB received Tk900 crore from the central bank in three installments under the capital market refinancing scheme. The government provided the fund to reduce the suffering of small investors during the 2010-11 stock market debacle.