Commercial banks sanctuary for small investors
Sunday, 8 May 2011
Md Azadur Rahman Khan
The country is passing through a crucial period following the stock market scam. Rising inflation rate, higher import payment against lower remittance growth, and widening gap between lending and deposit have become major challenges. In order to minimise credit risk of the commercial banks and removal of mismatch between asset and liability the Bangladesh Bank is giving pressure on scheduled banks to reset Credit Deposit Rate (CDR) at 85 per cent. Thus the central bank is using money mechanism by way of lending contraction and deposit expansion policy. The news of the recent stock market scam features regularly in our national dailies. The following discussion may influence small investors to make investment decisions anew. For the sound growth of industrial sector there must be sources of capital mobilisation. Industrial growth necessitates creation of wealth, formation of capital, to increase production and exports and create employment. So capital market and commercial banks are the only sources of capital for industrial growth. We can look critically at other countries' capital market formation policy. Only Japan in the world has attained industrialisation without any bond and capital market. Initially, the companies of Japan gets loan of up to 80 per cent of the total capital for each project and bears only interest cost without making repayment of capital. This policy allowed Japanese companies to use all surplus funds and retain earnings for investment and to expand their businesses. But in USA and some western countries capital market is the main source of equity and 50 per cent debt equity comes from banking system as finance. Industrialised Asian countries like South Korea, Taiwan, Singapore and Malaysia have adopted similar mode of capital mobilisation of Japan, heavily depending on debt equity but not on owner's equity. Bangladesh stated procuring funds from capital market as well as debt equity to boost up capital for the expansion of the industry sector. It is an irony of fate that our capital market first faced a severe jolt from market manipulation and speculators in 1996-97 and the experience was bitter for all the investors. The most venerable group was the small investors and they had to bear the brunt of the stock market debacle at that time. Hereafter, the share market started to grow in leaps and bounds before the second stock market crash happened in 2010-11. The secondary market share prices of all companies hiked and people from all walks of life even housewives invested money by collecting funds from various sources. With the view to opening BO accounts, many security exchanges mushroomed keeping pace with the growing number of investors. We now know that many people accumulated money for investment in the share market by selling land, ornaments and borrowing money from kith and kin. Moreover, many unemployed people also rushed to the share market in the hope of making a windfall profit. Now, they are feeling cheated in many ways, as they are failing to recover their investments. Whatever is the outcome of the probe committee report on the share market debacle, it is obvious that small investors are the worst victims. Perhaps the market will go up once again, but the specter of an imminent crash in the capital market is creating social unrest in many ways. It is both logical and rational that the investors willing to invest money in share business will observe the financial health, profit and other financial indicators of the company, whose shares they want to buy. But the small investors on many occasions invest money without having accurate information of the companies. Big investors can recoup somehow but small investors are the ultimate losers in the event of a scandal in the share market. However, time has come to re-think whether the small investors should invest in the secondary market or not under such uncertainty? It is the investors' discretion to take investment decisions where the profit is more. The second stock market crash has proved beyond doubt that investment in commercial banks in various short-term and long-term schemes is safer and rational investment decision for the small investors. To ensure the sustainable deposit the commercial banks have stated hectic drives to collect deposit to face liquidity crisis by maintaining Debt Coverage Ratio (DCR) rate at 85 per cent as per the guidelines of the central bank. All the commercial banks are running for deposit by introducing many deposit schemes by way of integrated marketing communication and Niche marketing (school banking for school students or monthly savings scheme generally preferred by women). With a view to protecting themselves from loss of their capital in stock market landslides, the small investors can invest their small funds in commercial banks by selecting different deposit schemes for short and long terms. The writer is Assistant Vice President National Bank Ltd and can be reached at e-mail: azad_dec@yahoo.com
The country is passing through a crucial period following the stock market scam. Rising inflation rate, higher import payment against lower remittance growth, and widening gap between lending and deposit have become major challenges. In order to minimise credit risk of the commercial banks and removal of mismatch between asset and liability the Bangladesh Bank is giving pressure on scheduled banks to reset Credit Deposit Rate (CDR) at 85 per cent. Thus the central bank is using money mechanism by way of lending contraction and deposit expansion policy. The news of the recent stock market scam features regularly in our national dailies. The following discussion may influence small investors to make investment decisions anew. For the sound growth of industrial sector there must be sources of capital mobilisation. Industrial growth necessitates creation of wealth, formation of capital, to increase production and exports and create employment. So capital market and commercial banks are the only sources of capital for industrial growth. We can look critically at other countries' capital market formation policy. Only Japan in the world has attained industrialisation without any bond and capital market. Initially, the companies of Japan gets loan of up to 80 per cent of the total capital for each project and bears only interest cost without making repayment of capital. This policy allowed Japanese companies to use all surplus funds and retain earnings for investment and to expand their businesses. But in USA and some western countries capital market is the main source of equity and 50 per cent debt equity comes from banking system as finance. Industrialised Asian countries like South Korea, Taiwan, Singapore and Malaysia have adopted similar mode of capital mobilisation of Japan, heavily depending on debt equity but not on owner's equity. Bangladesh stated procuring funds from capital market as well as debt equity to boost up capital for the expansion of the industry sector. It is an irony of fate that our capital market first faced a severe jolt from market manipulation and speculators in 1996-97 and the experience was bitter for all the investors. The most venerable group was the small investors and they had to bear the brunt of the stock market debacle at that time. Hereafter, the share market started to grow in leaps and bounds before the second stock market crash happened in 2010-11. The secondary market share prices of all companies hiked and people from all walks of life even housewives invested money by collecting funds from various sources. With the view to opening BO accounts, many security exchanges mushroomed keeping pace with the growing number of investors. We now know that many people accumulated money for investment in the share market by selling land, ornaments and borrowing money from kith and kin. Moreover, many unemployed people also rushed to the share market in the hope of making a windfall profit. Now, they are feeling cheated in many ways, as they are failing to recover their investments. Whatever is the outcome of the probe committee report on the share market debacle, it is obvious that small investors are the worst victims. Perhaps the market will go up once again, but the specter of an imminent crash in the capital market is creating social unrest in many ways. It is both logical and rational that the investors willing to invest money in share business will observe the financial health, profit and other financial indicators of the company, whose shares they want to buy. But the small investors on many occasions invest money without having accurate information of the companies. Big investors can recoup somehow but small investors are the ultimate losers in the event of a scandal in the share market. However, time has come to re-think whether the small investors should invest in the secondary market or not under such uncertainty? It is the investors' discretion to take investment decisions where the profit is more. The second stock market crash has proved beyond doubt that investment in commercial banks in various short-term and long-term schemes is safer and rational investment decision for the small investors. To ensure the sustainable deposit the commercial banks have stated hectic drives to collect deposit to face liquidity crisis by maintaining Debt Coverage Ratio (DCR) rate at 85 per cent as per the guidelines of the central bank. All the commercial banks are running for deposit by introducing many deposit schemes by way of integrated marketing communication and Niche marketing (school banking for school students or monthly savings scheme generally preferred by women). With a view to protecting themselves from loss of their capital in stock market landslides, the small investors can invest their small funds in commercial banks by selecting different deposit schemes for short and long terms. The writer is Assistant Vice President National Bank Ltd and can be reached at e-mail: azad_dec@yahoo.com