BB-BSEC row reins in stocks’ growth spurts
The stock market's recent growth spurt slowed last week as the tension between the central bank and the stock market regulator over some policy issues has rattled investors.
When the DSEX, the benchmark index of the Dhaka Stock Exchange, surged past 7,000 points for the first time, investors and analysts were already talking about whether the index was set to climb further as earnings of the companies improved and the concerns about the impacts of the coronavirus pandemic waned.
The DSEX, however, closed at 7,228 points on Thursday, down from 7,258 on the first day of the week. Daily average turnover also dropped by 20 per cent to Tk 2,224 crore in the week.
"All the regulators should take decisions unitedly. Otherwise, it hurts people's confidence," said AB Mirza Azizul Islam, a former chairman of the Bangladesh Securities and Exchange Commission (BSEC).
"Recently, media reports were published that two regulators are in a row over policy decisions, but this is not a good sign."
Last week, the central bank said listed banks and non-bank financial institutions couldn't comply with the stock regulator's orders on the capital market stabilisation fund and cash dividend payment as they are inconsistent with the Bank Company Act.
The BSEC passed a rule in June that the stabilisation fund would be formed using the undistributed and unclaimed dividends of the listed companies. The aim is to use the fund, involving around Tk 21,000 crore, to safeguard the interest of the market and investors.
Islam, also a former caretaker government adviser, sees no problems if the stock regulator wants to use the unclaimed dividend of the listed companies in a good way and utilise the profits for social benefits.
The central bank also said listed banks would also not be able to follow the commission order on the cash dividend.
It came after the commission allowed the listed firms to declare cash dividends from the profits made in the just-concluded financial year despite having accumulated losses.
Islam backed the BB move, saying that companies should first adjust the accumulated loss before announcing dividends.
Recently, the BSEC asked the Investment Corporation of Bangladesh, Berger Paints Bangladesh, and Walton Hi-tech Industries to offload at least 10 per cent of their shares.
Walton issued 0.97 per cent of shares, ICB 3.19 per cent, and Berger 5 per cent, DSE data showed.
"Though some people are saying that the decision has impacted the market, investors will benefit in the long run. So, this is a welcoming move," said Islam.
Sharif Anwar Hossain, president of the DSE Brokers Association of Bangladesh, said the stalemate between the BB and the BSEC prompted investors to book profit.
"Profit-taking is normal, but some unexpected issues between the two regulators made headlines, taking a toll on the confidence of investors."
"The central bank should have raised its concerns about the stabilisation fund with the BSEC before the latter published the gazette."
"This is a sensitive market, and the issue is also important."
A market analyst said that the impasse emerged after two regulators took some decisions that were deemed that one was trying to counter the other.
The BB has been mopping up excess liquidity from the banking system to stop the asset bubble since it unveiled the monetary policy in July. In August, it withdrew Tk 19,645 crore from the market, BB data showed.
The central bank also ordered banks to beef up monitoring on loan disbursements to see whether funds end up in unproductive sectors like the stock market. It scrutinises banks' stock market investments on a daily basis to prevent their overexposure.
Already, it fined NRB Commercial Bank and NRB Bank for breaching rules while investing in the stock market.
For its part, the stock market regulator decided to extend loan facilities to investors so that they can buy stocks when the index is at record levels.
Investors can now take on loans of up to 80 per cent of their investment if the benchmark index crosses 7,000 points and stays within 8,000.
Earlier, investors were allowed to borrow Tk 80 against an investment of Tk 100 if the benchmark index was lower than 7,000 points.
The regulators might disagree on policy issues, but it should not be made public, said Ariful Haque, a non-resident Bangladeshi stock investor.
"The recent row between the central bank and the stock market regulator has affected the investors' mindset. So, the regulators should behave professionally.'
"The market is thriving, so the regulators should take decisions in a harmonised way."
As investors have huge confidence in the market, the index bounced back towards the end of the week.