Merchant banks seek special fund to prop up stocks

Merchant bankers yesterday sought a Tk 6,000-crore special fund from the government to increase money supply to the capital market, which is suffering from high volatility since the price crash in early 2011.

If granted, the merchant banks will take loans from the fund at 3 percent interest rate and then lend it to their clients or investors at 5 percent interest rate.

At present, there is a huge amount of negative equity in the market due to erosion of share prices. The amount of outstanding margin loan stood at around Tk 15,000 crore in December last year.

Of the amount, negative equity is around Tk 6,000 crore, according to the Bangladesh Merchant Bankers Association, which placed a set of recommendations to Finance Minister AMA Muhith at his office at the secretariat.

The merchant banks, which are considered major market intermediaries, are facing huge losses and are unable to recover them as well.

“We sought the special fund that will rescue us as well as boost the market by increasing money supply,” Md Sayedur Rahman, president of BMBA, told reporters after a meeting with Muhith.

The BMBA also recommended an alternative to the special fund: the government can issue Tk 5,000-Tk 6,000 crore bonds at 5 percent interest or coupon rate.

All banks and financial institutions will subscribe for the bond, the maturity period of which can be 7-8 years. The raised funds will be used for investment in the capital market, according to the proposal.

Citing another option, the BMBA urged Muhith to allow each bank to invest at least Tk 200 crore in stocks and each financial institution at least Tk 100 crore in addition to their regulatory limit.

The additional investment will be adjusted within the next five years, according to the proposal.

The final option the BMBA proposed was allowing all parent companies to absorb the negative equity of their subsidiary companies as operational loss.

And the tax authority will allow the banks to completely adjust the same with tax liabilities.

“Anyhow, we need to get out of the negative equity burden for survival of the market intermediaries and vibrancy of the market,” said Rahman, also the managing director of EBL Securities and a director of EBL Investments.

The BMBA also called for the finance minister to take steps to list the multinational companies operating in Bangladesh and the profitable government-owned enterprises in the stockmarket.