Investors burdened with loan interest as trading remains paused

Stock market investors, who have taken margin loans to purchase additional securities, are in dire straits amid the Covid-19 crisis.

The small and already afflicted investors have no income now as share trading remains halted for two consecutive months. Yet, they will have to pay high interest against the loans.

Sirajul Islam (not his real name) had around Tk65 lakh in his Beneficiary Owner (BO) account six months ago. But due to the margin debts and a continuous decline in the stock market, the amount now stands at only Tk11 lakh.

He has no income amid the countrywide lockdown as he has no other business.

Another investor, requesting not to be named, said his investment of around Tk23 lakh has already come down to only Tk5 lakh. It is decreasing every day due to his investment with the margin loan.

An investor named S Hossain lamented, "I shall have to pay around Tk2.5 lakh in interest for April for a margin loan although I have no income amid the lockdown."

There are many sad stories of such people who have lost their capitals in the stock market. Some have fallen in a peril due to margin debts while some others have lost everything to a negative market within only a few months.

The Bangladesh Bank has already issued a notification to the effect that borrowers will not be declared defaulters if they fail to pay loan instalments until June 30 of this year.

But, stock market investors have not received any government incentive or low-cost loans; nor do they have any respite from the interest on margin loans.

However, investors said they do not want to pay interest against margin loans charged during the ongoing general holidays.

According to relevant sources, the negative equity in the stock market amounts to more than Tk12,000 crore. But, it increased even more in the last few months.

Again, brokerage houses and merchant banks together have given a loan of around Tk17,000 crore, almost 60 percent of which have been given by the former.

Mizan-ur-Rashid Chowdhury, president of Capital Market Investors Oikya Parishad, told The Business Standard that brokerage houses should waive the charges being levied on margin loan holders during the general holidays.

"Otherwise, investors will suffer more losses. On the one hand, the stock market has been closed for two months in a row while, on the other hand, investors have become jobless."

He said they will apply to the securities regulator, BSEC, after a new commission is formed there.

On the issue, Dhaka Stock Exchange Director Rakibur Rahman said, "Investors who have invested with margin loans in this difficult situation are extremely hurt. We, the DSE, will take the issue of interest in a special consideration."

The Bangladesh Bank has only tried to protect the banks but has never considered that the stock market is an integral part of the banking system too, he added.

He hoped that the BSEC would instruct brokerage houses and merchant banks not to charge interest on margin loans at the time of shutdown.

Regarding the issue, BSEC Executive Director and Spokesperson Saifur Rahman said the commission would be able to decide on the issue of waiving the interest. "But before that, investors will have to apply to the commission."

But, no decision will be possible before the formation of the new commission, he added.

He also said investors of the subsidiaries of the banks that are covered under the central bank notification should also get that benefit.

If any application is submitted to the commission, it will be clear, he said.

Of the 236 member organisations in the DSE and the 145 members in the Chattogram Stock Exchange, most offer investors an opportunity to invest in the stock market through margin loans.

In the case of that investment, the institutions provide loans to the investors at 12-18 percent interest rates.

At present, the ratio of margin loan is 0.50, meaning that an investor is given Tk50,000 in margin loan if he has Tk1 lakh in his BO account. In this case, the flow of loans depends on the will of the house authorities.