A history of devastation: 2010 stock market crash, margin loans and doomed investors
Behind this disaster was not only unbearable market pressure and an artificially created bubble, but also the limitations of policy-making and regulatory systems, as well as the excessive and uncontrolled use of margin loans
The 2010 stock market crash is regarded as one of the most severe financial disasters in Bangladesh's history. In this crash, thousands of investors – many of whom were middle-class, small savers, or retired citizens – lost their life savings and their last resort of capital.
Behind this disaster was not only unbearable market pressure and an artificially created bubble, but also the limitations of policy-making and regulatory systems, as well as the excessive and uncontrolled use of margin loans.
Margin loans: Opportunity or ruin?
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In 2009 and 2010, the market was buzzing with excitement. Share prices were skyrocketing, and brokerage houses distributed excessive margin loans, which only fuelled investor greed.
Some people jumped into the stock market with their gold, land, or retirement funds. They bought valuable shares with margin loans that were double or more than their own capital, all in pursuit of a "dream profit" in the future. In the final quarter of 2010, as the market began to decline, those loans became a tool of their ruin.
Share prices plummeted, and investors could not meet the margin call because they did not have enough money. As a result, brokerage houses forcefully sold their shares. This forced selling put more pressure on the market, causing prices to fall even further. A relentless chain reaction began that had no end.
As investors panicked and tried to sell their shares to exit the market, the Bangladesh Securities and Exchange Commission (BSEC) and the Dhaka Stock Exchange (DSE) authorities imposed various restrictions on share sales.
Measures like circuit breakers, suspension of trading on specific shares, and trading halts blocked the way for investors to exit the market. Even with some shares' prices being artificially supported, investors could not sell them to cut their losses. As a result, many lost all their capital, sold their homes, and some suffered mental breakdowns or even made the tragic decision to commit suicide.
The current state of margin loans and the negative equity crisis in Bangladesh's stock market have not only harmed investors but have also, in the long term, eroded confidence in the country's capital market, hindered capital-raising efforts, and slowed down the pace of market expansion.
In response to the demands of affected investors after the 2010 stock market crash, the BSEC temporarily suspended the effectiveness of Section 3(5) of the Margin Rules, 1999, and has since continued to grant exemptions.
This rule stipulated that if the debit balance fell below 150% of the equity, the brokerage house or merchant bank was obligated to make a margin call and, if necessary, sell the securities to recover the loan. In essence, it mandated adherence to a specific risk management framework.
However, in practice, it has been observed that the loan-to-equity ratio for margin loans has been repeatedly changed to meet the market's need for liquidity or due to various pressures. This has resulted in multiple irregular relaxations in lending standards, which, overall, increased the level of risk in the market. In some cases, margin loans were even provided at a 1:2 ratio, exceeding the safe limit set by the rules, which brought about dangerous consequences for both the margin loan providers and the investors.
In this situation, the balance sheets of institutions that provided margin loans, such as the track-holders of the DSE and the Chittagong Stock Exchange (CSE), as well as merchant bankers, are in crisis because they cannot recover their loans.
To resolve the complexities related to margin loans and to increase liquidity in the stock market, provide financial relief to investors, re-establish confidence in the market, and restore the health of the lending institutions' balance sheets, a sustainable model of partnership between the government and the private sector is especially needed. Government intervention and incentives are necessary to ensure the stability of the capital market.
Updated state of margin loans and analysis of loan-induced negative equity
Comprehensive data has been presented on negative equity in margin accounts operated by margin loan providers in Bangladesh's capital market – such as the TREC holders of the DSE and the CSE, along with merchant banks – as well as the provisions maintained against them.
Analysis of the information shows that a total of 14,31,176 BO (Beneficiary Owners) accounts and 1,89,905 margin accounts are currently active, against which margin loans amounting to Tk168,94.57 crore have been disbursed.
Alarmingly, among these, 35,478 BO accounts across 142 lending institutions are in negative equity, with a total shortfall of Tk10,501.59 crore (comprising Tk7,879.16 crore in principal and Tk2,622.87 crore in interest).
As of 31 March 2025, provisions of only Tk2,945.06 crore have been maintained, leaving an actual net shortfall of Tk7,556.53 crore after provisioning.
These figures indicate that, on one hand, investors' losses are massive, while on the other, the inadequacy of provisions has left the market exposed to even greater risks. In particular, although the number of merchant banks' margin accounts is relatively smaller, the scale of their negative equity is substantial, making their net shortfall after provisioning especially acute.
As a result, general investors who took margin loans without fully understanding the risks have been wiped out. Moreover, with the rising trend of negative equity and the persistent shortfall in provisions, maintaining stability in the market has become increasingly difficult. Therefore, timely policy intervention and incentive measures by the government are crucial to restoring investor confidence and ensuring the long-term sustainable development of the capital market.
Current financial context
Following the experience of 2010, Bangladesh's financial system today remains bank-centric. Banks are using short-term deposits to finance long-term projects, creating maturity mismatches, while non-performing loans (NPLs) and distressed assets continue to rise.
- Total loans in the banking sector (as of March 2025): Tk17,48,000 crore
- NPLs: Tk4,20,335 crore (24.10%)
- Distressed assets: Tk7,56,000 crore (45%)
- Market capitalisation of the Dhaka Stock Exchange (as of July 2025): Tk7,08,000 crore
- Negative equity in margin accounts (as of 31 March 2025): Tk10,501.59 crore
Comparative analysis
- NPLs vs market capitalisation: 59% (4,20,335 ÷ 7,08,000)
- Distressed assets vs market capitalisation: 107% (7,56,000 ÷ 7,08,000)
- Negative equity vs NPLs: 2.3% (9,700 ÷ 4,20,335)
In other words, the crisis in the banking sector has already surpassed the size of the capital market. Recently, the Bangladesh Bank has extended Tk22,500 crore in loans to support some weak banks, with plans for an additional Tk20,000 crore in assistance.
Since no significant incentive package has yet been announced for the capital market, government policy intervention and incentives are now highly relevant for addressing the situation of margin loans and negative equity.
Proposed solutions
- Incentive-based model with government participation
For margin accounts under negative equity, institutions willing to waive part or all of the principal and interest may receive government incentives. Such support would be interest-free and provided for a five-year period. - Flexible repayable loan structure
The incentives received would be repaid gradually through loan portfolio rebalancing and liquidation processes. This would ensure investor protection while keeping the budget deficit under control. - Investor liability settlement and protection
Investors affected by negative equity could voluntarily transfer their shares and assets to the lending institutions to settle their liabilities. This would relieve them from financial and psychological stress, encouraging them to re-invest in the market in the future.
Expected benefits
- Financial relief for investors and the re-establishment of market confidence
- Restoration of the balance sheets of lending institutions
- Resolution of the complexities caused by negative equity
- Increased liquidity in the stock market and the establishment of long-term stability
- Establishment of a sustainable model of partnership between the government and the private sector
