The negative margin accounts of subsidiaries of non-bank financial institutions (NBFIs) slated for liquidation should be settled through liquidators to avoid potential selling pressure on the equity market, experts said.
The recommendation comes after the Bangladesh Bank proposed the liquidation of nine NBFIs, one of which is non-listed. Together, the institutions operate five brokerage firms and four merchant banks in the capital market.
Experts said that if a subsidiary is fully owned by an NBFI, its accounts will be brought under the parent company's asset liquidation process.
Among the institutions facing liquidation, the subsidiaries of listed entities include FAS Capital Management, Premier Leasing Securities, Fareast Stocks & Bonds, Prime Finance Capital Management, PFI Securities, PLFS Investments, International Leasing Securities, and International Leasing Capital. Aviva Finance is the only non-listed NBFI.
These subsidiaries have accumulated significant negative equity due to repayment failures against margin loans extended to clients. As a result, assets held in negative margin accounts-including securities-are now subject to liquidation.
Market participants warned that the equity market could face heavy pressure if these assets are dumped directly to close margin positions.
"Usually, a liquidator is appointed abroad to manage the overall liquidation process," said Md Ashequr Rahman, managing director of Midway Securities.
"It is not necessary that securities in negative margin accounts must be offloaded directly on the exchanges' main board," he said, adding that liquidators may auction subsidiary assets.
In such cases, third parties could purchase the assets through negotiated deals executed on the block board. Rahman noted that negative margin accounts may include shares of fundamentally strong companies, which could attract buyers at discounted prices.
"The securities can also be sold off-market," he said, explaining that liquidators aim to maximise value in exchange for a commission and therefore seek rational asset transfers.
Md Saifuddin, a commissioner of the Bangladesh Securities and Exchange Commission (BSEC), said a liquidator or administrator would have to be appointed to complete the liquidation process.
Complexity over liquidation process
Speaking to The FE, representatives of affected subsidiaries said they remained unclear about the process, as discussions over the liquidation of parent companies were still ongoing.
Md Rezaul Haque, managing director of Prime Finance Capital Management, said they had sought clarification from the securities regulator.
"We still don't know what's waiting for us," he said.
Some market insiders criticised the securities regulator's limited role in the ongoing merger of five banks and liquidation of nine NBFIs, arguing that investor protection requires stronger regulatory involvement.
Responding to the criticism, BSEC commissioner Saifuddin said the central bank, as the regulator of banks and NBFIs, is executing the plan in line with legal provisions and with government approval.
He said subsidiaries and their assets are consolidated into parent companies' balance sheets, leaving the securities regulator with no authority to intervene in decisions taken by the central bank.
Rahman of Midway Securities disagreed, arguing that while the central bank safeguards depositors' interests, the securities regulator is mandated to protect investors.
Although the central bank regulates banks and NBFIs, their subsidiaries are licensed by the BSEC, making the securities regulator the authority over those entities. As such, liquidation of subsidiaries cannot proceed without licence cancellation by the BSEC, he said.
Rahman added that subsidiaries could also be acquired by third parties, giving the securities regulator scope to play a role in mergers and liquidations.
According to BSEC data, PFI Securities had negative equity of Tk 6.76 billion, Fareast Stocks & Bonds Tk 6.35 billion, International Leasing Securities Tk 3.05 billion, Prime Finance Capital Management Tk 2.10 billion, and PLFS Investments Tk 1.64 billion as of November last year.
Aviva Finance, the only non-listed NBFI, owns 51 per cent of its subsidiary Aviva Equity Management, which operates in the secondary market. The remaining 49 per cent is held by shareholders of the parent company, said the subsidiary's chief executive officer, Mohammed Shahidul Islam.
Islam said the regulator had extended the deadline for settling negative equity to 2030 and beyond, depending on the strength of brokers and merchant banks, while the central bank planned to liquidate the parent companies.
"So, we are in a confounding situation," he said. "The market will also face selling pressure following liquidation, as the negative equities of the subsidiaries will have to be resolved."
mufazzal.fe@gmail.com
© 2025 - All Rights with The Financial Express
