Merchant banks' paid-up capital to go up

FE Team | Published: September 15, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

The Securities and Exchange Commission (SEC) is set to raise the paid-up capital requirement of merchant banks to Tk 100 million from Tk 20 million, according to a draft rule, reports bdnews24.com.
"It will bring about qualitative changes in the market. New capital requirements will also increase banks' strengths and ensure capital utilisation," said Salahuddin Ahmed Khan, chief executive officer of Dhaka Stock Exchange (DSE).
The DSE CEO, also a member of the SEC consultative committee, said merchant banks would have to remain active if they were to save their licences under the proposed rule.
The regulator moved to frame the rule against the backdrop of inertia of nearly half of the 30 merchant banks that were awarded licences earlier.
The absence of margin credit criteria for merchant banks also encouraged the regulator to frame the rule.
Under the draft, old merchant banks will have to meet the new capital requirement within six months from the date the law coming in force.
"The rule is now awaiting public feedback. We will finalise the rule after receiving public opinion," said the SEC Executive Director Farhad Ahmed.
The new rule will also bar merchant bank from underwriting and managing portfolios more than five times their paid-up capital.
"I think cell phone companies and some oil companies will go public in the next couple of years. Big companies usually choose those merchant banks that have financial strengths.
"If the capital requirement is raised, participation of such institutions will increase," said Arif Khan, General Manager of IDLC Finance.
A senior official with Prime Finance and Investment Ltd, who preferred not to be named, said the minimum paid-up capital requirement should be raised up to Tk 200 million considering the growth prospects of the market.
"Capital requirements should be raised given the way market is growing," the official said, referring to a recent amendment to the Banking Companies Act that asked banks to raise their total capital to Tk 2.0 billion.
But Ziaul Haque Khondker, managing director of state-run Investment Corporation of Bangladesh (ICB), said new capital ceiling was all right considering the size and depth of the market.
"It's (Tk 100 million) all right now. But it should be reviewed time to time considering the market size and turnover," he said.
Saiful Islam of Equity Partners Ltd, however, asked the regulator to allow old merchant banks to raise their paid-up capital in phases.
"This capital requirement is okay if the regulator allows asset management and brokerage functions under merchant banking. It will help us reduce management costs," he said.
Islam suggested that the merchant banks be allowed to raise paid-up capital to Tk 50 million in the first year and the remainder in the second year.