BB-BSEC line slows equity growth

The recent growth spurt in the stock market slowed down last week as tension between the central bank and the stock market regulator over some policy issues rocked investors.

When the DSEX, the benchmark of the Dhaka Stock Exchange, broke 7,000 points for the first time, investors and analysts were already wondering if the index was going to rise further as corporate profits rose. were improving and concerns about the impacts of the coronavirus pandemic have eased.

The DSEX, however, closed at 7,228 points on Thursday, up from 7,258 on the first day of the week. Average daily revenue also fell 20% to Tk 2,224 crore during the week.

“All regulators should make decisions together. Otherwise, it damages people’s trust,” said AB Mirza Azizul Islam, former chairman of the Bangladesh Securities and Exchange Commission (BSEC).

“Recently there were media reports that two regulators are clashing over policy decisions, but this is not a good sign.”

Last week, the central bank said that listed banks and non-bank financial institutions could not comply with the orders of the stock regulator regarding the capital market stabilization fund and the payment of cash dividends because they are incompatible with the law on banking companies.

The BSEC adopted a rule in June that the stabilization fund would be constituted using undistributed and unclaimed dividends from listed companies. The aim is to use the fund, involving around Tk 21,000 crore, to protect the interests of the market and investors.

Islam, also a former adviser to the interim government, sees no problem if the stock regulator is to put unclaimed dividends from listed companies to good use and use the profits for social purposes.

The central bank also said that listed banks would also not be able to follow the commission order on the cash dividend.

It came after the commission authorized listed companies to declare cash dividends on profits made in the fiscal year just ended despite accumulated losses.

Islam backed BB’s move, saying companies should first adjust the accumulated loss before announcing dividends.

Recently, BSEC asked the Investment Corporation of Bangladesh, Berger Paints Bangladesh and Walton Hi-tech Industries to offload at least 10 percent of their shares.

Walton issued 0.97 percent of the shares, ICB 3.19 percent and Berger 5 percent, according to DSE data.

“Although some people say the move has had an impact on the market, investors will benefit in the long run. So it’s a welcome move,” Islam said.

Sharif Anwar Hossain, president of the DSE Brokers Association of Bangladesh, said the standoff between BB and BSEC has prompted investors to record profits.

“Profit-taking is normal, but some unexpected issues between the two regulators grabbed the headlines, undermining investor confidence.”

“The central bank should have communicated its concerns about the stabilization fund to the BSEC before the latter published the gazette.”

“It’s a sensitive market, and the question is also important.”

A market analyst said the stalemate emerged after two regulators made decisions that were deemed one was trying to counter the other.

The BB is collecting excess liquidity from the banking system to stop the asset bubble since it unveiled monetary policy in July. In August, it pulled 19,645 Tk crore from the market, according to BB data.

The central bank has also ordered banks to step up monitoring of loan disbursements to see if funds end up in unproductive sectors like the stock market. He daily scrutinizes the stock market investments of banks to avoid their overexposure.

Already, he has condemned NRB Commercial Bank and NRB Bank for breaking the rules by investing in the stock market.

For its part, the stock market regulator has decided to extend credit facilities to investors so that they can buy stocks when the index is at record levels.

Investors can now borrow up to 80% of their investment if the benchmark crosses 7,000 points and stays within 8,000.

Previously, investors were allowed to borrow Tk 80 for an investment of Tk 100 if the benchmark was below 7,000 points.

Regulators could disagree on policy issues, but this should not be made public, said Ariful Haque, a non-resident Bangladeshi stock investor.

“The recent dispute between the central bank and the stock market regulator has affected the mindset of investors. Regulators must therefore behave in a professional manner.”

“The market is flourishing, so regulators should make decisions in a harmonized way.”

As investors have great confidence in the market, the index rebounded towards the end of the week.