Institutional investors give stocks a new lease of life
Low-cost funds from banks have prompted institutional investors to borrow more to invest in the stockmarket, giving a new lease of life to the market.
Total loan portfolio to the stockmarket stood at Tk 7,600 crore at the end of 2016, according to Bangladesh Bank data. Of the amount, 53 percent loan came from banks and the rest from non-bank financial institutions.
The increased capital base of the banking sector opened up fresh opportunity for banks to invest more in the stockmarket through lending to merchant banks, said a senior executive of the BB.
Of the total loans to the capital market, banks invested Tk 2,130 crore through merchant banks and Tk 1,900 crore through other tools in 2016.
Non-bank financial institutions lent Tk 2,330 crore through merchant banks and Tk 1,270 crore in margin loans, according to BB data.
Merchant banks, also known as institutional investors, invest in own portfolio and also lend to retail investors.
A senior executive of a merchant bank said the demand for margin loan rose as investors are enthusiastic about injecting fresh funds amid rising price index.
The scenario is different from 2013 when banks became shy to channel money to the stockmarket after their investment limit was capped at 25 percent of their capital in line with the amended Banking Companies Act 2013, according to a top official of a private bank. Banks' loans to subsidiaries are counted as capital market exposure. But now banks have more space to lend to the stockmarket because their capital base has widened, which boosted their exposure limit, the banker said.
The Dhaka Stock Exchange (DSE) also gained momentum in the middle of 2016 after retail investors started to move funds from banks to stocks after being buoyed by a fall in interest rates. The DSEX, the benchmark index of the premier bourse, reached 4,525 points at the end of July last year but it rose 34 percent to 6,069 points yesterday.
During the same period, market capitalisation surged 26 percent to Tk 4,050,503 crore. Daily average turnover climbed to Tk 1,000 crore in recent months from Tk 700 crore to Tk 800 crore at the end of last year.
The weighted average deposit rate stood at 4.89 percent in July this year from 5.48 percent in the same month last year. Lending rate came down to 9.51 percent from 10.32 during the same period, according to BB data.
Total capital in the banking system was Tk 83,758 crore in December last year, up from Tk 75,352 crore in the same month the previous year, according to central bank data.
The banking sector's exposure to the stockmarket came down to about 20 percent in June this year from over 23 percent in last December. Yesterday, stocks at the DSE ended in the red, breaking an eight-day gaining streak. The broad index lost 13.83 points compared to the previous day.
However, market participation was higher as turnover increased 30.5 percent to Tk 1,369 crore.
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