The Bangladesh Merchant Bankers Association (BMBA) has formally requested the government to extend the repayment period for loans taken under the capital market refinancing scheme by an additional five years.
In a letter to the Financial Institutions Division of the Ministry of Finance (MoF) on August 27, The BMBA sought the extension of the loan repayment period until 2032.
The association also sought a one-year grace period, given the current market conditions, as the tenure of the scheme is scheduled to expire in 2027.
The stock market has been experiencing a bearish trend since the 2011 market debacle, with only occasional short-lived rebounds that have failed to sustain.
In 2013, the government launched a Tk 9.0 billion capital market refinancing scheme to alleviate sufferings of the small investors affected during the 2010-11 market crash, offering a lower interest rate to support their recovery.
The market intermediaries, including merchant bankers, and state-run Investment Corporation of Bangladesh, borrowed from the scheme to provide loans to the affected small investors, who had investment below Tk 1 million in the stock market prior to the market crash, at a lower interest rate.
Since the stock market debacle in 2011, the market has been going through a bearish trend, which continued until 2020 when the coronavirus pandemic made the situation worse. In response, the government in 2021 extended the tenure of the revised refinancing scheme until December 2027, aiming to help revitalise the capital market.
The size of the fund was also increased to Tk 10.09 billion. The loans were provided to affected small investors and institutional investors, including merchant banks, under the management of Investment Corporation of Bangladesh (ICB).
The loans are required to be repaid on a quarterly basis.
"The members of the merchant bankers association, including Investment Corporation of Bangladesh, invested in the stock market by taking loans from the capital market refinancing scheme to support the market," reads the letter of the BMBA.
Despite combined efforts to stabilise the stock market, the stock market stayed in the bearish trend due to one after another issues.
"The prime index of Dhaka Stock Exchange was at 7,329 in September 2021, which came down to 5,380 in June 2024," the BMBA letter said.
Due to the prolonged bearish market trend, the financial condition of market intermediaries has been severely impacted. They are struggling to meet operational costs and find it increasingly difficult to repay their loans.
"If we start selling shares to meet the loan repayment obligation, sale pressure will intensify in the market, potentially increasing the risk of further market decline," reads the letter.
In this context, the merchant bankers' association has requested the government to extend the loan repayment deadline up to 2032. They believe that this long-term extension will have a positive impact on the stock market.
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