Bangladesh Merchant Bankers Association (BMBA) has made a set of proposals, including bringing clients having margin loan above Tk 10.0 million under credit information bureau (CIB) reporting, to facilitate the recovery of 'huge default' margin loan, officials said.
The BMBA's other proposals include extension of timeframe for provisioning of margin loan up to December 31, 2015 from December, 2014 and ways of boosting the capital base of merchant banks within three years.
Merchant bankers' proposals came in the backdrop of their efforts to recover margin loans worth about Tk 150 billion provided by the stock brokers and merchant banks before December 2010 to January 2011 stock market debacle.
Merchant bankers' association made the proposals Thursday last in a letter signed by BMBA President Tanjil Chowdhury and sent to the chairman of the Bangladesh Securities and Exchange Commission (BSEC).
In their letter, the merchant bankers sought time extension till December, 2015 on case to case basis, to facilitate the provisioning of margin loan at a rate of 20 per cent per quater.
As per the extended timeframe set by the securities regulator, the merchant bankers have been facilitated for provisioning their losses incurred on their own and in clients' portfolios by December 31 next.
A BMBA leader told the FE that in some cases the merchant bankers cannot reach the borrowers who earlier took large margin loan against their portfolios.
"To facilitate the recovery of huge default margin loan, we propose that the clients having loan of more than Tk 10.0 million can come under the CIB reporting of the central bank, as we do not have any other functional resources," the BMBA letter said.
Normally, the CIB report provided by central bank does not include the information of margin loan taken from merchant banks.
"Borrowers will be bound to repay their margin loans to keep other banking transaction safe if they come under the CIB reporting," the BMBA leader said.
Merchant bankers have also proposed an optional requirement to increase size of their banks' paid-up capital.
"Existing paid-up capitals will be seriously affected if the merchant banks do provisioning of margin loans. That's why our proposal is that respective boards will plan as to how the capital base can be boosted by injecting fresh funds from sponsors or new shareholders," the BMBA leader said.
The BMBA has also sought the clarification regarding the provisioning circular issued by the securities regulator.
"BSEC circular has only mentioned the provisioning of un-realised loss. But equity became negative due to both realised and un-realised loss. So, the BSEC circular should be on either both realised and un-realised loss or negative equity," the BMBA leader added.
Asked whether the fresh proposals would affect the capital market, another BMBA leader said without finding other possible ways they made the proposals.
In this regard, former BSEC Chairman Faruq Ahmad Siddiqi said the problem should have been addressed by the government two years back.
"It's true that merchant banks earlier disbursed margin loan beyond the stipulated limit. In that case merchant bankers can be punished for breaching rules. But at the same time, the problems of merchant banks should be solved to make them active in the market," Mr. Siddiqi told the FE.
He said it is not easy to say anything about the BMBA's proposal regarding bringing clients having huge default loan under the CIB reporting as the issue is complicated.
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