FE Today Logo

Liquidity support to stock market

Stabilization Fund releases Tk 1b for low-cost loans to market intermediaries

FE REPORT | April 03, 2024 00:00:00

The Capital Market Stabilisation Fund (CMSF) has finally decided to disburse low-cost loans worth Tk 1 billion to market intermediaries for liquidity support to the moribund stock market.

The CMSF signed an agreement with Community Bank Bangladesh on Tuesday at the CMSF office.

The Stabilisation Fund will provide loans through the bank at a fixed interest rate of 7 per cent, with an additional bank charge of 1.25 per cent. That means the market intermediates will get loans at an 8.25 per cent interest rate, much lower than the maximum lending rate of 13.55 per cent set for April.

Mr Monowar Hossain, chief of operations of the CMSF, said the loan disbursement process officially began after the signing of the agreement.

"We have already sent a list of market intermediaries to the bank for loan disbursement, aiming to enhance the liquidity support to the market."

The move has been made at a time when the stock index plunged to three-year low to 5,738, and the market turnover fell to three-month low on Tuesday.

Daily turnover, the most important indicator of the market, stood at only Tk 3.62 billion, registering a decline of 21 per cent from the previous day.

Market operators say investors have been mostly inactive as they are not confident enough to put fresh funds into stocks. The tight liquidity scenario in the money market hurt market participation while many investors favored channeling funds to other investment instruments for higher returns.

Loan beneficiaries

The CMSF will provide loans of Tk 50 million to institutional market intermediaries each, while general intermediaries will get maximum Tk 20 million each.

To get the loan, intermediaries must maintain deposits equivalent to the loan amount in their own accounts.

After a loan is granted, market intermediaries (stock brokers, stock dealers, merchant banks, asset management companies, and market makers) can directly invest in the stock market, but only in the "A" category stocks.

Also, they can provide margin loans to clients as per the margin loan policy. The single-borrower exposure will be maximum 5 per cent of the total available fund from the loan.

The repayment period will be 180 days, renewable upon successful use of the loan amount and full payment of loan interest.

Any stock broker or intermediary, which has a deficiency in consolidated customers' account (CCA), or is not compliant regarding risk-based capital adequacy, or has been punished in the last five years, will not get the loan.

An intermediary or any director of an intermediary, who is a loan defaulter according to the Credit Information Bureau (CIB) report, will not be eligible for the loan.

On January 4, the CMSF board approved the proposal to provide loans of Tk 1 billion to stock market intermediaries to strengthen and stabilise the stock market.

Earlier, it provided Tk 2.25 billion of loans to the Investment Corporation of Bangladesh (ICB) to stabilise the market.

[email protected]

Share if you like