Reduce burden of negative equity in capital market; BSEC approaches ministry
Muhammad Ayub Ali :
Bangladesh Securities and Exchange Commission (BSEC) has sought the intervention of the Financial Institutions Division of the Ministry of Finance to solve this problem of unpaid losses (negative equity) against margin loans which is one of the biggest problems in the country’s capital market.
As of October 31, 2024, the total negative equity of various brokerage houses and merchant banks, excluding provisioning or security reserves, stood at Tk 7,824.18 crore.
The regulatory body wants to solve the problems related to negative equity arising in the capital market with the help and effective advice of the Financial Institutions Division.
At the same time, the Securities and Exchange Commission has also requested the Financial Institutions Division to convene a meeting with all brokerage houses and all merchant banks in this regard.
A letter in this regard has been sent from BSEC to the Secretary of the Financial Institutions Division of the Ministry of Finance, according to the relevant sources.
In the letter, BSEC said that due to the sudden major fall in the prices of securities in the capital market in 2010 and the subsequent various unusual and undesirable events related to this in the following years, unpaid losses accumulated as margin of investors, which has been carried forward in the form of negative equity for investors for a long time.
Despite the Commission taking various initiatives to resolve this problem, including continuous discussions with market intermediaries, it has not been possible to achieve the desired improvement in the existing negative equity situation.
The letter further states that in the past, the Bangladesh Securities and Exchange Commission had directed the market intermediary institutions to make provisions against unpaid losses in order to eliminate existing negative equity from the capital market, the deadline for which has expired on January 31 of this year.
The letter requested to kindly consider the letter sent by the Bangladesh Securities and Exchange Commission on November 28, 2024.
A BSEC official told Risingbd.com on condition of anonymity that an application has been made to the BSEC to extend the period of provisioning against negative equity until 2030.
In addition, an application has been made from DSE for refinancing of negative equity. A proposal has already been sent to the Ministry of Finance by BSEC.
Situation of negative equity in the capital market
According to BSEC sources, as of October 31, 2024, the total margin loan amount given to investors from 1,74,467 margin BO accounts by brokerage houses and merchant banks belonging to DSE and CSE is Tk 18,128.7 million.
The brokerage houses belonging to DSE have given margin loans to investors of Tk 11,545 million. Out of this, the actual negative equity amount is Tk 5,144.63 million and the interest is Tk 1,191.5 million. As a result, the total negative equity amount of the brokerages belonging to DSE stands at Tk 6,336.13 million. Against this, brokerage houses have kept a total provision of Tk 1,458.9 crore.
CSE member brokerage houses have given margin loans of Tk 350.59 crore to investors. Out of this, the actual negative equity is 80.64 crore taka and the interest is Tk 211.4 crore. As a result, the total negative equity of CSE member brokerage houses stands at Tk 290.78 crore. Against this, brokerage houses have kept a total provision of Tk 1,306.9 crore.