Stock brokers in dire need of incentives
Stock market investors and intermediaries are now in real peril as the index of the country's bourses have sunk along with turnover in the past few months of the coronavirus pandemic.
The solution they say are sustenance incentives in the upcoming budget of FY 2020-21.
"Many stock brokers who get brokerage charge from trading will be compelled to shut their business if the current situation continues and they do not get incentives," said Sharif Anwar Hossain, president of the DSE Brokers' Association (DBA).
"We need incentives desperately because stock brokers are suffering for the last five years due to low turnovers," he said, adding, "Now the situation has intensified."
Stock market trading was suspended for the past two months in line with a nationwide shutdown aimed at containing the coronavirus outbreak in Bangladesh.
Although the market opened on June 1, average turnover on the Dhaka Stock Exchange (DSE) slumped to Tk 120 crore as of yesterday.
Before the pandemic, average yearly turnover had kept below Tk 500 crore for the past seven years, with the exception of 2017 and 2018.
Even though turnover is low, the number of brokerage houses is not. There are already 238 members under the DSE and 136 under the Chittagong Stock Exchange.
Many brokerage houses are struggling to pay staff salaries, said Hossain who is also managing director of Shahidullah Securities.
Many brokerage houses borrowed money from relatives to pay staff and office rent with hopes that the market will turn around but now that hope is flickering, he added.
The DBA already sought an incentive package, including concessional loans, to bear office expenses and pay employee salaries. They expressed intent to pay back the loan within two years at 3 per cent interest.
The DBA called for lowering advance income tax on share trading to 0.015 per cent from the existing 0.05 per cent.
The government imposed higher taxes based on a higher turnover in 2010 but after that year's boom turnover fell, the taxes remained the same, said another stock broker.
The association urged for incentives for investors as well because they have also been struggling with ailing stocks for a while.
It requested the government to scrap the provision for paying annual BO account fees and to provide refinancing facilities to investors who are margin loan account holders to help prevent themselves from going for forced sales.
The refinancing facilities need to come at 3 per cent interest rate for three years.
Sorkar Joynal Abedin, a stock investor, said he has been observing the horrible bleeding in his portfolio since last February.
During this time, the benchmark index of the DSE dropped 17 per cent to 3.956 points.
After the historic market crash of 2010, the index has reached a new low while remaining bearish almost all the time, for which investment slowly eroded in the last one decade, said Abedin, an MBA-degree holder who works at a private company.
"Now the situation has deteriorated to the lowest point, for which the government can consider providing some incentives to investors and listed companies," he added.
The DBA also urged the Bangladesh Securities and Exchange Commission to refrain from charging yearly broker and dealer fees of the current year.
From the DSE, it sought scrapping yearly subscription fees and the authorisation of representative fees so that brokers can give various facilities and services to the investors to bring them back to the market.
Merchant banks are also in trouble due to the bearish market.
"The number of merchant banks is huge compared to the market size so many merchant banks fail to process any issues in a year," said a top official of a leading merchant bank, preferring anonymity.
Merchant banks manage initial public offerings and give the service of under writing and advocacy in investment.
In 2019, 10 IPOs were approved whereas there are 62 merchant banks now in the country, according to the BSEC data.
The asset management companies are also not in a favourable position amid the bearish market.
"Most of the asset management companies which manage mutual funds are struggling to find funds and they will face a big challenge now," said Shahidul Islam, chief executive officer of VIPB Asset Management.
The government can provide refinance schemes for them so that they can survive, Islam said, adding that the mutual funds were very crucial for a sustainable market.