The securities regulator has taken strong initiative to bring more merchant banks into the stock market to attract investment in the stock market.
The move came against the backdrop of fund shortage in the market because of cash withdrawal by some investors after the elected government took over the administration.
Analysts, however, remained sceptical over the objective of the move unless the companies have professionalism and strong financial base.
More state-owned and private financial institutions are expected to receive licences in near future to start operation as merchant banks.
"We are going to allow more financial institutions to act as merchant banks in a quickest possible time," said Farhad Ahmed, executive director of the Securities and Exchange Commission (SEC).
"More merchant banks means more flow of fund," he added
The SEC at a meeting held early this month with bourses identified that the market was facing massive fund shortage, making the market bearish.
"I think the move will bring no good to the market unless licences are given to the research-based companies having professionalism and strong financial strength," Ifty Islam, managing partner of Asian Tiger Capital Partners, an investment firm.
Some 20 to 30 professional merchant banks are enough for the country's stock market, he said. "However, foreign investors remain the most important vehicles for increased fund flow to the market," he argued.
"The move of the commission is good, but the merchant banks should focus on forming their own portfolio in making the development of market sustainable," said Yawer Sayeed.
They should not be confined merely to lending, which most of the merchant banks are doing, he added.
More than 20 applications submitted by the commercial banks and non-banking financial institutions to the SEC for operation of merchant banking are now pending, sources said.
The aspirants include Sonali Bank, Agrani Bank, BRAC Bank, Southeast Bank, One Bank, National Bank, City Bank, Eastern Bank Limited, Mutual Trust Bank, First Lease International and MIDAS Finance, they added.
To make the process of issuance of licence faster, the SEC has formed a three-member committee headed by its member Muhammad Yasin Ali. The members of the committee are executive director Farhad Ahmed and Abdul Hannan Zoarder.
Under the SEC merchant banker licensing rules, a merchant bank working only as issue manager has to submit at least a documented proposal for an initial public offering of a company in a year, while a merchant bank licensed to act only as portfolio manager has to form at least five new portfolios of its clients besides its own, and a merchant bank working as a full-fledged merchant bank has to manage one IPO, to be underwriter of two issues and form five new portfolios of its clients besides its own in a calendar year.
Currently, 26 merchant banks are operating in the market. Of which, 23 have full-fledged merchant banking lincence while two have only issue management licence and one has only portfolio management licence.
Only a few of them are now active and most of them have shown poor performance in the capital market, with a number of them even appeared reluctant to start operations, SEC sources said.
So far, the commission has canceled licences of six merchant banks because of violation of securities rules or their inactiveness after taking licence.
They are the First Securities Services Ltd and the Raspit Securities and Management Limited, Pangaea Partners (BD) Ltd, Prime Securities and Financial Services Ltd, Mercantile Securities Ltd and Equity Valuation Research and Distribution Ltd.
Between January 22, 1998 and February 17, 2009, a total of 32 companies received merchant banking licences from the commission. In the last two years the Securities and Exchange Commission (SEC) issued only three merchant bank licences.
Trust Bank is the only bank that obtained the merchant banking licence last year while the Janta Bank is the latest and the first state-owned bank that obtained the licence last week. The Bank is expected to come in operation next week.
