1:1 loan ratio fixed for merchant banks

The Securities and Exchange Commission (SEC) yesterday fixed 1:1 loan ratio for merchant banks meaning if an investor has shares worth Tk 1, he/she will be eligible to receive Tk 1 loan.
“The new ratio will be effective from today. We have already issued directives in this regard,” said Farhad Ahmed, executive director of SEC.
The new ratio will be applicable for offering fresh loans to investors or clients.
Price of a share will be calculated by dividing the summation of current market price and net asset value by 2.
Earlier last month, the SEC okayed the margin loan rules to check any market manipulation through providing excess loans to investors by the merchant banking wings of banking and non-banking financial institutions.
As per the rules, the SEC will fix the ratio of loans from time to time.
The new rules also put a bar on a merchant bank providing loans to its officials and close relatives of officials.
Previously, there was no guideline on offering margin loans and the merchant banks follow their internal code of conduct to approve loans to investors.
In the wake of bullish trend in stock market, the SEC received allegations that the merchant banks were giving excess loans to the investors as well as their officials.
Meanwhile, price indices on the stock exchanges fell yesterday with the losers outnumbering the gainers.
Experts attributed the sharp decline in share prices to price correction and SEC's statement over 'unusual' upward trend in recent days.
The DSE General Index declined by 27.9 points, or 0.96 percent, to close at 2873.78 points, while CSE Selective Categories Index fell by 57.45 points, 1.2 percent, to finish at 4710.86 points.
The DSE All Share Price Index also dropped by 30.26 points, 1.23 percent, finishing at 2426.34 points, while the CSE All Share Price Index fell by 101.89 points, or 1.35 percent, ending the day at 7406.29 points.
A total of 19,157,855 shares worth Tk 286.16 crore changed hands on the Dhaka Stock Exchange (DSE), while a total of 3,972,348 shares worth Tk 43.38 crore changed hands on the Chittagong Stock Exchange (CSE). Of the issues traded, 78 advanced and 120 declined with 17 unchanged on the premier bourse, while 40 advanced and 79 declined with eight unchanged on the port city bourse.