Investment in stock market by banks

The statement recently made by the President of ABB raised certain confusion which needs to be clarified. ABB stands for Association of Bankers, Bangladesh. It is, therefore, an association of "bankers" and not banks. As far as this writer knows there is another forum, formed earlier by the banking companies, completely distinct from ABB. However, we take strong exception to the President of ABB's assertion "the top bankers expressed desire to invest in secondary stock market". Our question to him who takes the investment decision in a bank? It is not the 'top bankers' but by the Board of Directors of (BoD) of the banks. After all they are dealing with the public money and it is the board of every bank which has been empowered to take any investment decision which would be safe and profitable within the regulatory framework. At this point, no investment in secondary stock market is safe and profitable. So does it justify for the boards of banks to invest in such a volatile market from public deposits? The answer is very clear. We do not know under what context the President, ABB made this remark; if for cheap popularity we have nothing more to say. His next observation came as a bombshell to most of us. He said, "banks are investing in secondary share market by taking loans from call money at 18% interest". We think this is a crime and how could the Bangladesh Bank allow it is beyond our imagination. Call loan is repayable on demand. But investment in share market is a long-term one, not that liquid and realisable to pay back call loan on demand. How a "top" banker can even suggest such a long-term investment by taking short-term loan is beyond our wildest imagination. As a result the banks' indulgence in such highly risky operation will tend to become defaulters. This is totally against the regulations of the Bangladesh Bank. The government is borrowing indiscriminately from the banking system which, according to news report, already touched about Taka 200 billion (20,000 crore) resulting in severe liquidity crunch in the banking sector shooting up of call money rate and putting a full brake on credit disbursements. Under the circumstances from where the Taka 50 billion (5000 crore) investment promised by the top bankers would come remains a big question. Next, under no circumstances investment of fund in the secondary share market at 18% plus 02% =20% cost, inclusive of reserves and other costs, would fetch any profit for the banks; rather, this would result in loss. No new profitable companies are coming with initial public offerings (IPOs). The unruly behavior in the annual general meetings (AGM) by a section of so-called "small investors" and their attitude towards extortion are discouraging and providing a wrong signal to any prospective new entrant to the capital market. It is an open secret that those so-called small investors need to be "managed" by the management of the companies before the AGM to avoid any commotion and untoward incident. Companies declaring more than 20% dividend are few and far between in Bangladesh. So, are the top bankers aiming to earn from "Fatka Bazari" business? We do not think they have the mandate to do this. In our opinion, a handful of small investors are creating problems for themselves by indulging in demonstrations and engaging themselves in act of arson, on the pretext of fall in share prices. Share prices will not rise by destroying public properties. Rise and fall of share prices is a normal phenomenon, and that depends on the investment decisions of the investors, among other issues. The share prices around the world is down these day in line with the general state of the global economy. Yes, there are also manipulators and relevant government regulations should take care of that. Otherwise, unruly behaviour will give wrong signal to the investors and erode their confidence. This will ultimately harm our stock market operation. The latest move to involve the highest administration to improve stock market may not bring the desired result as the top private and public policy makers and regulators so far failed to bring any sustainable and tangible improvement. We don't think they are left with any other solution in their bags. Injecting of black money will not act as a life saver; rather, it would trigger long-term additional serious problems for the government. Government does not have any magic wand to bring overnight improvement in the situation in the stock market. It is the investors who should decide whether to invest in a volatile and insecure market and suffer loss or wait and study the market before making any investment decision. Stock market is a place where rumour plays a big role. Therefore, the less we talk about it, the less media coverage of it and, most importantly, the less agitation may help improve the situation. Let us all create an environment that would encourage good companies to enter the market and enable the investors to earn good dividend. There is a dearth of such shares in our stock markets. The scarcity has helped influential and unscrupulous manipulators to reap illegal benefit in the past which led to the crash of the market on a number of occasions. What is needed is a little bit of patience from all of us. Let the inherent market mechanism take its own course to correct the situation with the regulators keeping a constant watch on the situation and taking appropriate actions as may be necessary. The writer can be reached at e-mail: mahoque07@gmail.com