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Stock refinancing fund from government coffers only

  • Published at 04:00 am May 30th, 2013
Stock refinancing fund from government coffers only

The government’s move to arrange a refinance scheme for the ailing stock market has taken a new turn as Bangladesh Bank came up with some proposals before providing funds.

Last week, the finance ministry had asked the central bank to give Tk9bn to the merchant banks and broker houses to reschedule loans of the investors affected in the stock market debacle since December 2010.

“The refinancing facility will not be provided from the central bank’s own fund but from the profit it pays to the government coffers every year. The fund should go through an approval in the next budget,” Bangladesh Bank Deputy Governor SK Sur Chowdhury told a press conference at the central bank headquarters in Dhaka yesterday.

Outlining the funds management procedure, he said Investment Corporation of Bangladesh (ICB) will disburse the funds to be monitored by Bangladesh Securities and Exchange Commission (BSEC).

If the finance ministry approves the proposal, the fund will be disbursed in three installments to help bring stability in the stock market, he said. In case of failure in utilising the fund, the securities regulator will have to take the responsibility, not the central bank, he added.

The Bangladesh Bank board of directors on Monday approved in principle the proposal of the refinancing scheme. Earlier, the ministry in request of BSEC wrote to the central bank that the merchant banks and the broker firms require refinancing to help them reschedule the loans of their respective clients.

Last month, the BSEC had forwarded a proposal to the finance ministry to allocate the money as loans to the stock market operators along with a report on the implementation status of the stock market compensation package that the government had announced last year.

According to the BSEC report, the merchant bankers would need more than Tk9bn and the broker houses of Dhaka and Chittagong stock exchanges over Tk6bn for refinancing the margin loan accounts of the stock investors.

The report said Tk2.75bn was adjusted as compensation by five broker houses and merchant banks.

“The major portion of the loans of the merchant banks given to investors remained unrealised because of an unexpected market condition. On the other hand, merchant banks are repaying the installments of loans that were taken from the commercial banks at higher interest rates,” said the BSEC report.

The government in March 2012 had announced the compensation package that also included an interest waiver on margin loans for the investors who suffered losses during the market crash in 2010.

After the compensation package was announced, merchant banks and broker houses estimated that the total affected investors would be of around 950,000 and Tk2.3bn is required for waiving interest of the investors and rescheduling of the loan accounts.

Only 7,413 out of the affected investors have received the compensation so far, it said.