Merchant banks and stockbrokers will have to maintain the newly-imposed margin loan ratio for the existing loans disbursed to their clients and the fresh loans to be issued after June this year, a senior BSEC official told New Age. Bangladesh Securities and Exchange Commission executive director Saifur Rahman made the comment after the Bangladesh Merchant Bankers Association had recently requested the commission to clarify the newly-imposed margin loan ratio implementation process.
BMBA president Tanjil Chowdhury in a letter to the commission enquired whether the newly-imposed margin loan ratio (1:0.50) would be applicable only for the loans to be taken by clients or also for the loans taken by clients.
The letter also said, ‘If all the existing loans come under the BSEC’s newly-imposed ratio, merchant bankers will need to go for forced sales in many accounts to reduce the margin loan exposure within the limit even if the equity debt ratio is above 30 per cent.’ Saifur, also the project director of the capital market development project, said that the BSEC formulated its guidelines for margin loans following a condition set by the Asian Development Bank under CMDP-2.
As there is no scope of changing the guidelines, all the merchant banks and stockbrokers will have to bring down their clients’ margin loans within the ratio set by the guidelines, he said.
The guidelines were formulated in September 2012 to avoid any short of sudden pressure on the capital market, he said.
BSEC sources said the capital market regulator formulated the guidelines also to reduce investors’ much dependency on loan-based investment.
As per BSEC’s margin loan guidelines, from July 1 this year the margin loan ratio came down to 1:0.50.
The margin loan ratio was 1:2 in 2012, while it came down to 1:1.50 on December 31, 2013 as per the guidelines.
The margin loan ratio declined further to 1:1 from January 2014.
According to the latest BSEC report, the margin loans disbursed by merchant banks and stockbrokers to their clients were around Tk 14,000 crore. The figure was almost same in 2011 as most of the loans disbursed are yet to be recovered.
The commission in 2009-10 had changed the margin loan ratio for several occasions.
After the market crash by the end of 2010, the BSEC in January 2011 withdrew itself from regulating margin loan disbursement.
The commission then said that it would not set the margin loan ratio but would monitor loan disbursement by the merchant banks and the brokerage houses as per the ratio to be set by them.
-With New Age input
