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Stabilisation Fund plans to boost market with Tk 2.6b lifeline

MOHAMMAD MUFAZZAL | May 15, 2023 00:00:00

The Capital Market Stabilisation Fund (CMSF) is set to disburse Tk 2.6 billion in loans to market intermediaries in order to boost liquidity flow in the mostly-stagnant stock market.

As a matter of caution, it will ensure a legal vetting of the loan disbursement procedure to avoid any future complication.

CMSF officials fear that the Bangladesh Bank may raise a question whether the Fund should be lending money, a role played by banks and financial institutions.

Another point to ponder is that the CMSF will not be able to go to the Money Loan Court after failing to realise money from a defaulter.

Conditions to be met for loans

The Stabilisation Fund has come up with guidelines to be followed for loan disbursement.

It will prefer market intermediaries that engage in financial literacy programmes, provide training to small investors, are involved in social welfare activities, working with disabled people for example, protect environment and discharge other corporate social responsibilities.

Such loans will be accessible, especially when the market is bearish, not bullish.

A stock broker will not be eligible for loans if it has deficits in its consolidated customers' account or if it is not compliant in terms of risk-based capital adequacy or if it has been penalized by the regulator or stock exchanges in the last five years.

A member of the Operations Management Committee of the Fund said the authority may relax the criteria decided for market intermediaries.

In compliance with 2021 rules

The Stabilisation Fund that had been formed to settle claims for undistributed dividends can also inject cash into the market to revitalize it.

"Since it will have perpetual existence, legal vetting is necessary to avoid any problem that may emerge in absence of the incumbent leaderships," an official of the CMSF said, preferring not to be named.

The fund set to be given away in loans is in compliance with the rules issued by the securities regulator in June 2021.

According to the rules, at least 50 per cent of the fund's total cash balance can be distributed among market intermediaries as loans, 40 per cent to be used for sell-buy of listed securities and the remaining 10 per cent be kept in FDRs (fixed deposit receipts).

The CMSF has already completed settlement of investors' claims for dividends amounting to Tk 41.6 million and invested Tk 2.25 billion in listed securities through the Investment Corporation of Bangladesh (ICB).

As a sponsor, the CMSF has contributed Tk 500 million to a mutual fund floated by the ICB Asset Management Company.

The fund had received undistributed cash dividends of Tk 5.2 billion and stock dividends worth Tk 7 billion at the market price from issuers.

Abiding by the rules, the CMSF now can disburse Tk 2.5 billion among market intermediaries.

The borrowed money will have to be used for investing in only 'A' category securities from dealers' own portfolio.

Officials involved in the decision-making process said five stock brokers had already showed interest in taking loans from the CMSF.

The interest rate charged against the loans will be higher than the six-month average of the FDR rate prevailing in the banking industry plus an additional 2 per cent for management expense.

Market intermediaries will be allowed to use part of the borrowed money to give margin loans to their clients.

CMSF officials said the interest rate would be around 8 per cent for stock brokers and merchant banks but their clients would be charged around 12 per cent against margin loans.

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