IMF adds stockmarket string to $1b credit

The International Monetary Fund (IMF) has attached a new condition to its $1 billion credit offer for Bangladesh: demutualisation of stock exchanges as part of an effort to stabilise the troubled stockmarket.
Last week, an IMF mission after a visit to Bangladesh put the latest condition, taking the number of strings to 14. The IMF presses for a directive from regulators to begin demutualisation of Dhaka and Chittagong bourses by December.
An official of the Banking Division of the finance ministry said the government is considering demutualisation of the stock exchanges but the timeframe for the process has not been set yet.
The multilateral lending agency said the Securities and Exchange Commission must move quickly to develop a contingency plan and communication strategy to ensure a stable and orderly trading environment.
It said stockmarket governance should also be strengthened immediately, and there should be a thorough plan to demutualise the stock exchanges. The IMF mission also conveyed some of their observations on the stockmarket to the government.
The IMF opposed the Tk 5,000 crore Bangladesh Fund, which is being created by the Investment Corporation of Bangladesh (ICB) and state-owned banks and financial institutions.
"The new Bangladesh Fund could invite further moral hazards and pose added risks to its sponsors including state-owned commercial banks," the IMF said.
To avoid a spill-over effect in the monetary and fiscal policies and ensure stability in the banking system, the relaxation of securities regulations should be reversed gradually to prevent excessive risk-taking, it said.
The Banking Division official said the ICB is experienced and efficient in fund management. In the past it took fund from the Bangladesh Bank and invested in the market and never failed to repay the money.
However, the official said, following the IMF concern the ICB will operate the fund more cautiously.
The IMF also said financial regulator should carefully monitor the banks' exposure to the capital market in light of the current volatility and avoid pressuring state-owned financial institutions to intervene in the stockmarket in the interest of ultimately safeguarding public resources.
A central bank official said they have already intensified monitoring of the banks, and their exposure to the stockmarket has come down to legal limit.