Stockbrokers rush for low-cost loans amid liquidity crunch

Market intermediaries rush to secure low-cost loans offered by the Capital Market Stabilisation Fund (CMSF) to prop up the country's volatile stock market amid a liquidity crunch.

Fifty-four capital market intermediaries have so far applied for loans offered at 8.5% interest, including service charges, for investing in stocks – well below the over 13% interest on bank loans.

Officials with knowledge of the matter told The Business Standard that fund disbursement began on Monday, with a broker receiving approval of a Tk5 crore loan from the CMSF. Another four or five brokers are likely to receive loans this week.

The CMSF planned to inject Tk100 crore of fresh funds through the intermediaries to support the stock market, with individual brokers potentially receiving loans ranging from Tk2 crore to Tk5 crore. Institution-backed intermediaries are set to receive up to Tk5 crore, while others may avail of Tk2 crore, as per sources.

These funds will be disbursed as loans through Community Bank Bangladesh.

Discussing the fund injection amid the liquidity crunch, Professor Shibli Rubayat-Ul Islam, chairman of the Bangladesh Securities and Exchange Commission (BSEC), told TBS, "The fund disbursement has already begun. The intermediaries will invest the funds exclusively in the capital market."

In late May, the BSEC relaxed two conditions of the loans: collateral provision and interest rates. Initially, the interest rate was capped to not be less than the 3-month average rate (on the higher side) prevailing in the banking industry.

Subsequently, an agreement with the lending bank fixed the interest rate at 8.25% a month ago. However, due to rising interest rates in the banking industry, the rate increased by 0.25% to 8.5%, inclusive of service charges.

With BSEC's new decision, intermediaries now have the flexibility to provide a corporate guarantee instead of 100% collateral against the loans. Previously, 100% collateral was required for margin loans and other disposable securities.

According to CMSF, the board of governors approved loans for 11 stockbrokers, including an asset management company, ranging from Tk2 crore to Tk5 crore. Subsequently, another 43 stockbrokers, merchant banks, and asset management companies applied to the CMSF, expressing their interest in obtaining loans.

A CMSF official told TBS, "The application list has been forwarded to the bank, which will verify the documents and disburse the loans promptly as the interested parties urgently require funds for market investment."

He also mentioned that fund disbursement commenced with an institution-based stockbroker receiving Tk5 crore. Gradually, all interested stockbrokers will secure loans at low costs.

At the beginning of the year, CMSF planned to lend Tk100 crore to intermediaries. By securing loans, brokerage firms and merchant banks can invest in the capital market and provide margin loans to their clients. As per the conditions, brokerage firms and merchant banks must invest the loans in their portfolios exclusively in "A" category shares for five consecutive years.

BSEC stipulated that market intermediaries must ensure deposits equivalent to the loan amount into the dealer account or their portfolio account.

In a directive to CMSF, BSEC specified that loans would not be granted to any stockbroker with deficits in consolidated customer accounts (CCA), non-compliance with risk-based capital adequacy, or who has been penalised in the last five years.

Established in 2021, CMSF serves as a custodian for undistributed cash and stock dividends, non-refunded public subscription money, and unallotted right shares from issuers of listed securities.