Only City Bank took up the Bangladesh Bank’s package for banks to invest in stocks, as yet another initiative of the government to prop up the flagging bourse falls flat. The development suggests that the problems causing the stock market to slide are deep-rooted and cannot be fixed with stop-gap measures. Earlier on September 22, with the view to shoring up the capital market the central bank announced a package for banks that would let them borrow money through repo for six months at 6 percent interest to invest in stocks. Repo refers to a system of repurchasing treasury bills from banks to lend money. The window to avail the package closed on December 22 last year and only City Bank borrowed Tk 50 crore, according to data from the Bangladesh Bank. “There is no guarantee that there would be profits, so banks did not respond,” said Khairul Bashar Abu Taher Mohammed, chief executive officer of MTB Capital. Besides, the conditions of the loans dampened the banks’ excitement for the loans. Banks had to keep treasury bonds as collateral to take the loans. The treasury bonds bear interest rate ranging from 7 percent to 9 percent. “The stock market has been falling for the last few months, so banks evaluated the pros and cons and decided not to take the loan,” said Bashar, also the former secretary general of Bangladesh Merchant Bankers’ Association (BMBA). His reasoning was not too far off in case of City Bank. The bank saw unrealised losses of about 9 percent due to the constant slide of the market in the last few months. DSEX, the benchmark index of the premier bourse, dropped 1,174.57 points, or 21.74 percent, since last September, according to data from the Dhaka Stock Exchange. The six-month duration and the capital market uncertainty made banks decide against taking loans from the BB, said a merchant banker who is one of the leaders of the BMBA. “Either the Bangladesh Bank did not do any research before offering the loan or it wanted to offer the stimulus just for eyewash. They know banks will not take loans for such a short time and that too by keeping their treasury bonds,” he said requesting not to be named to speak candidly on the matter. Besides, it is a complex process, he added. The banks that are taking the loan would have to open a separate beneficiary owners’ account to utilise the fund, according to the central bank notice. “Maybe the banks thought they would not invest in the stock market then, so they had not taken the loan,” said Ali Reza Iftekhar, chairman of the Association of Bankers, Bangladesh, a platform of private banks’ managing directors. Every bank has its own strategy to invest in the stock market, so they took their decision in line with that. “We decided not to increase our stock market exposure,” said Iftekhar, also the managing director and chief executive officer of Eastern Bank. However, market analysts said such lending incentives are not the solution to stopping the capital market slide. More than anything, the government needs to take firm steps to ensure good governance in the stock market regulator and listed companies in order to bring back investor confidence. Steps must also be taken to bring well-performing companies to the market. Sirajul Islam, spokesperson of the central bank, said they offered the incentive after analysis and six months is enough time to get returns from an investment. “Maybe banks don’t want to invest or they have no need to borrow money, so they have not taken loans,” he added. The central bank also provided a revolving fund to the Investment Corporation of Bangladesh to invest in the stock market for the same end. It also redefined banks’ exposure definition to increase their investment capacity.
Source – The Daily Star.
