Stock market subsidiaries of banks, FIs in trouble

The subsidiaries of banks and financial institutions (FIs) operating in the stock market are now having difficult time as their parent bodies are trying to comply with the central bank's directive on single borrower exposure limit, sources said. At present, the single borrower exposure limit for banks and FIs is 15 per cent of their tier-1 capital. Most of the subsidiaries of banks and FIs have borrowed funds much higher than that limit. The BB has fixed June 30 as the deadline for adjusting the loan limit by the banks and the FIs. According to the present rule, banks and FIs cannot lend more than 15 per cent of their tier-1 capital (core capital) to any single client. The subsidiaries are considered as single party. A high official of a leading brokerage firm told the FE: "We started our brokerage business by taking Tk 5.0 billion loan from our parent company. We have been able to bring down the loan amount to Tk 2.5 billion." "According to the central bank's single exposure limit circular, we can take at best Tk 1.7 billion loan from our parent company. If we have to bring down our loan to that limit, we will be compelled to go for forced-sale of shares of our clients, which is not possible in this persistently declining market," he also said. "If the Bangladesh Bank does not extend the time limit to adjust the loan, the investors will be severely hurt once again," he added. When contacted over the issue, chief executive officer (CEO) of NCCB Securities Mazum Ali also told the FE that the subsidiaries were now under tremendous pressure because of the central bank's directive on single exposure limit. He commented that the BB should consider extension of the timeline in this regard. Or else, many of the subsidiaries would be compelled to go for forced-sale of their clients' shares. It would cause further deterioration the capital market situation, he added. Officials of another brokerage firm told the FE that the firms were not entitled to get loans from the FIs other than their parent companies. Other FIs will not consider properties of the brokerage firms as mortgage.