Very low turnover coupled with non-payment of a large amount of outstanding loans by the clients for long have put a good number of merchant banks and stock brokers in serious financial difficulty, market insiders said.
According to the officials of the Bangladesh Securities and Exchange Commission (BSEC) and the association of merchant bankers, the total outstanding margin loan now stands at around Tk 140.0 billion which was around Tk 130.0 billion in September, 2013.
"The merchant banks and the stock brokers are receiving support neither from clients nor from the market," said the chief executive officer (CEO) of a leading merchant bank.
According to him, no effective effort is yet in sight to create a breathing space either for the lenders or investors or the capital market as a whole.
"The margin loans, which were disbursed against clients' portfolios, came from the lenders' own coffer. That's why some institutions may face bankruptcy if the prevailing situation continues for some more months," said Md. Moniruzzaman, managing director of the IDLC Investments.
He said systematic risks and capital adequacy related problems being experienced by many merchant banks and stock brokers are becoming acute day by day due to non-adjustment of portfolios.
The Dhaka Stock Exchange (DSE) witnessed an average daily turnover of around Tk 16.43 billion in 2010, Tk 6.64 billion in 2011, Tk 4.20 billion in 2012 and Tk 4.0 billion in 2013.
"The average daily turnover during the years 2009 and 2010 can be considered as abnormal due to the then unusually bullish trend of the capital market. But presently, the daily turnover very often is around Tk 2.0 billion. In no way this turnover can be viable for the survival of the merchant banks, stock brokers and the investors," said the CEO of another leading merchant bank.
The officials of the Prime Bank Investment said their current present daily turnover is equivalent to around nine per cent of that of 2009 and 2010.
"Presently, our daily turnover has come down to less than one per cent of the total market turnover. It is very difficult to run the business due to very low market turnover coupled with the substantial amount of unrealised margin loan," said a senior official of the Prime Bank Investment.
Some merchant banks and stock brokers, however, said they are working to create a breathing space for their clients having negative equity.
"To overcome the current difficult situation we have waived the interest of margin loans and implemented the 'Mark-to-Mark' to reduce margin loans gradually," said the managing director of the IDLC. Â
Mohammad Khairul Anam Chowdhury, the CEO and the director of the LankaBangla Securities, said the amount of negative equity of their clients has reduced enough due to the initiatives taken by the clients themselves.
"We have formed a separate team to handle the clients' inactive portfolios. The amount of negative equities has gone down as the clients got the facility of reshuffling items in their portfolios," Mr. Khairul said.
The officials of the AB Investment have also claimed that they were working to get rid of current difficult situation.
"The interest on margin loans and the fees against many portfolios were not charged in 2013 considering the sufferings of our clients. That's why the amount of our margin loans did not increase significantly," said Sheikh Ashraful Haque, the CEO (current charge) of the AB Investment.
Mr. Haque said meanwhile some of their clients have got breathing space because of various supports.
According market insiders, the problems of the merchant banks which had disbursed margin loans above the ratio of 1:1 has intensified.
"A merchant bank disbursed margin loans at the ratio of 1:2 to 1:5. Now the bank is facing a very tough situation," the market insiders said.
Some market sources said the monitoring by the central bank and the writ petition filed challenging the legality of the notification on holding minimum two per cent shares by listed companies' sponsor-directors are also playing a role behind the present market situation.
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