Muhith says merchant banks must increase paid-up capital
The government is going to amend the existing laws to restrain the merchant banks from forced selling of clients’ portfolios and to increase the amount of minimum paid-up capital set for the banks, finance minister Abul Maal Abdul Muhith said on Friday.
‘Forced selling is unfair. We will make the necessary amendments to the laws to regulate forced selling [of clients’ shares] by the merchant banks,’ he said after a meeting with the leaders of Merchant Bank Association and officials of the Securities and Exchange Commission at the SEC office.
The meeting was convened in the wake of recent volatility in the country’s capital market.
Muhith said many people inexperienced in share-trading invested in the capital market and it was not fair for the banks to sell off investors’ shares after providing them with loans. ‘The practice of recovering loans by selling investors’ shares without their consent will be stopped,’ he said.
The minister said the merchant banks could not perform properly in the equities market because of their low capital base.
The government will set a minimum paid-up capital requirement for the merchant banks, he said, adding that the state-run merchant banks would soon increase their paid-up capital.
He also said, ‘They should look for sources other than clients’ deposits to increase their capital.’
Regarding margin loan ratio, Muhith said the merchant banks would set the ratio based on their relationship with their clients and the government or the SEC would not interfere. ‘But the government will formulate a guideline for them.’
He said the practice of allocating shares through placement would be stopped to stop market manipulations.
The minister also said the book-building method for initial public offering would be reformed as allegations of price manipulation of shares issued through the process had been raised.
Muhith accused the chartered accountants of unethical practices in preparing balance sheets of companies and hinted at enacting a fresh law to regulate their activities. He said the government had formed a cabinet committee for drafting the Financial Reporting Act to regulate the activities of chartered accountants.
He emphasised conducting awareness programmes for the general investors as he claimed that the recent stock market volatility was triggered by them. ‘They might have university degrees but their knowledge about the capital market is not at all adequate,’ he said.
Asked about why the government’s measures had failed to stabilise the stock market so far, Muhith said, ‘I would better not comment on why the market is still volatile as the answer would be a political one.’
‘The government should not inject funds to the market but in the current market situation it has hardly any other option,’ he said in response to a question about the recent government directive to the state-owned banks to buy shares and fund allocation to the Investment Corporation of Bangladesh for the same purpose.
The merchant banks tabled several proposals in the meeting, including taking long-term deposits from clients, re-introducing advisory service, and formulating a market-making policy.
SEC chairman Ziaul Haque Kahndokar said the merchant banks had proposed for taking long-term deposits from their clients on which the commission needed to consult the Bangladesh Bank.
‘The merchant banks would have to make adjustments according to the criteria set by the Bangladesh bank,’ he said.
About formulation of a market-making system proposed by the merchant banks, the SEC chairman said, ‘It’s a common practice in many countries.’
The market-makers are the individuals or firms with trading privileges on an exchange who have an obligation to buy when there is an excess of sale-orders and to sell when there is an excess of buy-orders.
The merchant banks also proposed for offering advisory services to their clients which is currently restricted by the law.
