Negative equity, unrealised loss: BSEC grants case-by-case extensions to 28 market intermediaries

Highlights

Restrictions during extension period

• No new shares can be purchased in BO accounts with negative equity
• No interest or management fees may be charged on margin loan accounts
• Capital market intermediaries cannot declare or distribute dividends 

The Bangladesh Securities and Exchange Commission (BSEC) has granted extensions to 28 capital market intermediaries, including stockbrokers, dealers, and merchant banks, allowing them additional time to maintain provisions and adjust negative equity and unrealised losses on a case-by-case basis.

The commission, in a press release issued today, said the approvals were given based on action plans submitted by the respective intermediaries and endorsed by their boards. However, the release did not specify the duration of each extension.

An analysis of the approved list shows that most of the 28 institutions are subsidiaries of commercial banks.

In April this year, the commission directed stockbrokers, dealers, and merchant banks to submit a board-approved, implementable roadmap by 30 June 2025 outlining how they would achieve full provisioning. 

In response, some of the firms submitted their action plans to resolve long-standing issues in the capital market.

When asked, a BSEC official told The Business Standard that the regulator extended the deadlines individually according to each firm's submitted roadmap. "Some institutions have been given time until 2025, some until 2028, while others have received extensions up to 2030 or even 2032," the official said.

Under these extensions, the institutions must complete full provisioning and adjustment of their negative equity and unrealised losses within their respective deadlines.

During this period, the BSEC will also relax certain regulations concerning net worth shortfalls among stockbrokers, dealers, and merchant banks, the release stated.

The 28 institutions include AIBL Capital Market Services, UCB Stock Brokerage, Mercantile Bank Securities, Bank Asia Securities, EBL Securities, Shahjalal Islami Bank Securities, Uttara Bank Securities, NCCB Securities, IIDFC Securities, Southeast Bank Securities, Unicap Investments, ICB Capital Management, GSP Investments, Agrani Equity and Investment, Prime Bank Investment, IIDFC Capital, EC Securities, Jamuna Bank Capital Management, Dhaka Bank Securities, Pubali Bank Securities, MTB Securities, AB Securities, Phoenix Securities, Prime Islami Securities, SBL Capital Management, Trust Bank Investment, EBL Investment, and EBL Capital Limited.

In a separate order today, the BSEC said intermediaries must submit quarterly progress reports until the issue is fully resolved. 

However, the order imposed several restrictions: no new shares may be purchased in BO accounts with negative equity, though shares may be sold for adjustment. No interest on margin loans or management fees can be charged to BO accounts, and intermediaries – stockbrokers, dealers, and merchant banks – are barred from declaring or distributing dividends during this period.

Additionally, no new negative equity may be created. If unavoidable circumstances lead to negative equity, full provisioning must be made within the current financial year. The commission also directed that any information requested by the regulator must be submitted within seven days.

In December last year, stockbrokers had proposed a six-year relaxation, up to 2030, to gradually meet provisioning requirements for negative equity and unrealised losses — long-standing issues in the capital market.

Later in April this year, after the BSEC asked broker-dealers and merchant banks to submit board-approved, implementable roadmaps, the regulator extended the previous provisioning deadline – initially set for 31 January 2025 – to 31 December 2025. 

Most intermediaries had failed to comply earlier due to a prolonged bearish market that left them with around Tk10,000 crore in bad assets in leveraged client accounts.