Regulator asks for bailout plans of merchant bankers, stockbrokers

Untying margin-loan tangles

| Updated: October 24, 2017 23:05:02

Regulator asks for bailout plans of merchant bankers, stockbrokers

The regulator asked merchant bankers and stockbrokers to submit individual plans for resolving within a year the margin loan-related problems--some dating back to the market crash.

As per the regulatory instructions, the merchant bankers and stockbrokers will have to come up with their specific remedial plans within a week, sources said Monday.

The regulatory instructions came Sunday following the lenders' proposals for extending timeframe of conducting share transactions on margin accounts having negative equity.

The timeframe--which was earlier extended several times--of conducting transactions in margin accounts having negative equity ends on August 18.

At a meeting held Sunday with the securities regulator, the affected merchant bankers and stockbrokers urged the Bangladesh Securities and Exchange Commission (BSEC) to extend the timeframe for one more year. 

"The regulator may extend the timeframe. But the problems regarding margin loans cannot go forever. That's why the BSEC asked the lenders to solve the problem within one year," said Ahmad Rashid Lali, president of the DSE Brokers Association of Bangladesh.

He said the lenders will have to submit the respective plans as to how the margin loans can be adjusted within a year.

"After submission of proposals, the securities regulator will monitor the lenders' activities on resolving margin loans on a case-to- case basis," Ahmad Rashid said.

BSEC officials said the lenders will have to solve the problems of margin loans as per their respective plans.

"The regulator will stretch its helping hand if the lenders come forward to solve the longstanding problem of margin loans. Otherwise, the regulator will be tough as per rules," said one BSEC official.

A good number of merchant banks and brokerage firms have yet to come out of the woods due to gross mismatch between the funds they had lent as margin loans and the value of the stocks.

The greater portion of margin loans was disbursed by the merchant banks and brokerage firms before the 2010-11 stock-market debacle following burst of bubble on the capital market.

No identical account of margin loans is available as the stakeholders have mentioned varied figures.

The volume of outstanding margin loans advanced by merchant banks and brokerage firms of both the stock exchanges rose to Tk 225.29 billion, inclusive of interest, according to DSE's information sent to the BSEC in August 2015.

At the time, the outstanding amount of such margin loans was Tk 0.87 million to Tk 9.61 billion.

The erosion witnessed by some margin-loan providers was from 30 per cent to 50 per cent.

The major margin-loan providers were AIBL Capital Market Services, PFI Securities, NBL Securities, LankaBangla Securities, Bank Asia Securities, Mercantile Bank Securities, Fareast Stocks and Bonds, NCC Bank Securities and Financial Services, Reliance Brokerage Services, Shahjalal Islami Bank Securities, MTB Securities, International Leasing Securities, IFIC Securities, ICB Securities and Trading Company, DBL Securities, Premier Bank Securities, City Brokerage and EBL Securities.

The amount of outstanding margin loans came down to Tk 116 billion in July 2017 from Tk 225.29 billion calculated in August 2015, according to information sent to BSEC.

In a letter sent to the finance minister in April 2016 the merchant bankers had said the amount of negative equity was around Tk 140 billion.

At Sunday's meeting, the merchant bankers said the amount of negative equity now halved to around Tk 70 billion.

Meanwhile, some merchant banks including IDLC Investments adjusted margin loans through internal management.   

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