Top brokerage houses of the Dhaka Stock Exchange on Sunday blamed Bangladesh Bank’s frequent change in policies on commercial banks’ role in the capital market for the current liquidity crisis in the market.
At a meeting with the DSE board, some 30 top brokers identified six major reasons for the latest fall in transaction volume including BB’s change in interest rate for the commercial banks, ‘tight deadline’ to adjust single party exposure limit, and uncertainty about amendment of Bank Companies Act.
The DSE organised the meeting with the top brokers in the backdrop of severe liquidity crisis in the capital market that resulted in volatility in trading in almost every trading session in last few days.
‘All participants in the meeting expressed their concern about the frequent policy change of the central bank, and identified such changes as the key reason for the latest liquidity crisis prevailing in the market,’ DSE president Shakil Rizvi told reporters after the meeting.
The BB has already drafted an amendment to the act setting a policy that the banks would be allowed to invest 25 per cent of their equities in the capital market instead of the existing provision of highest investment of 10 per cent of their total liabilities.
He said, ‘The possible changes to the Bank Companies Act would also keep the commercial banks at the edge, as they fear that after the change they might be in a tighter spot with regard to their capital market investment.’
Besides, the brokers also said that the latest December 31 deadline given by the central bank for banks to cut down their single borrower exposure limit was not sufficient.
The central bank in May extended the time-frame for adjustment of ‘single borrower exposure limit’ by the commercial banks for financing the operations of their subsidiaries — brokerage houses and merchant banks – to December 31 from August 31. Any bank will have to cut down its single borrower exposure limit to 15 per cent of its paid up capital.
Shakil said, ‘A number of banks are also facing problems to adjust their exposure in the capital market in such a short time.’
He said, ‘The feedback we got after talking with top brokers will be reviewed in the board meeting and then we will make proposal to the Securities and Exchange Commission.’
A government move to change the statutory regulatory order about the undisclosed money under which investment of undisclosed money in the capital market can be questioned, was also a major reason for the market to face the liquidity crunch, the brokers pointed out.
‘There might have some confusion among the investors after this announcement. We will request the finance ministry to clear the confusion and provide investors more precise information in this regard,’ Shakil said.
He said, ‘As per the budget announcement, we know that investment of undisclosed money is only subject to 10 per cent tax.’
The brokers in the meeting also said that the rise of tax on brokers’ income in the budget for 2011-12 was slowing down the overall transaction as the investors have to pay extra amount.
‘According to the brokers, although rate of tax hike seem very insignificant, it affects the investors’ mindset,’ said Shakil.
Beximco group vice chairman Salman F Rahman, who was inducted in the DSE board last week, was present beside Shakil Rizvi.
Ahsanul Islam, senior vice president of DSE, said that out of the total participants, 11 were bank brokers and nine were non-bank financial institutes, which means they are directly affected by the policy changes of the central banks.
He said that the DSE would meet finance minister and Bangladesh Bank governor to discuss how to stabilise the capital market.
The Securities and Exchange Commission, meanwhile, decided to hold a series of meeting this week with the stakeholders to address the current liquidity crisis in the market.
SEC sources said the commission will sit with merchant banks on Tuesday and the representatives of the asset management companies on Wednesday.
The commission will discuss the outcome of the meetings with stakeholders with its advisory committee on Thursday.
Courtesy of New Age