Merchant bankers for no change in margin loan ratio

Bangladesh Merchant Bankers' Association (BMBA) has proposed finalising the guideline on margin loans without changing the existing loan ratio fixed at 1:2, sources said.

At the same time, the BMBA has proposed for a provision of forced-selling of shares if the prices of those, purchased by taking margin loans, register fall below a certain level.

The draft proposal was submitted to the SEC before the bankers' meeting with the finance minister who ordered a halt to forced-selling on Friday last. That's why finance minister's proposal could not be incorporated in the draft on margin loans.

However, the source said, the bankers are thinking to add a proposal, which will protect the interest of banks and their clients.

The proposal comes after the SEC recently asked the merchant bankers and the bourses to submit a guideline on margin loan by February 10.

But both bourses and BMBA failed to submit the guideline by the deadline and the SEC extended the time limit following a request.

However, the BMBA proposed providing margin loans by adding the money collected for the purpose of IPO (initial public offering) rights shares, at purchase price or market price, whichever is the lowest.

According to a source, the BMBA has proposed providing margin loans in accordance with the present margin loan ratio of 1:2, set by the SEC.

In that case, the lowest price between the purchase price and market price will be the base in providing margin loans.

On the other hand, the merchant bankers have proposed for forced-selling on the condition of margin calls two times if the prices of the shares, which are purchased by margin loans, come down to a certain level.

In such case, merchant bankers will deliver the first call for margin if the share prices record a fall by 50 per cent of their equities and the second call will be applicable to more than 70 per cent decline.

The second call will be delivered only when the clients will fail to deposit fresh funds and the banks will go for forced-selling if clients' equities drop to 80 per cent.

However, the merchant bankers said in their draft proposal that the SEC could revise the loan ratio time to time if it feels necessary.

On the other hand, the merchant bankers have not mentioned the highest limit for single borrower and any proposal regarding the portfolios in the draft policy.

However, the SEC is likely to ask for the single borrower's highest limit from the bankers.

At the same time, after finalising the draft policy, the securities regulator will not intervene in margin related issues and the merchant bankers will provide loans in accordance with their guideline.