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Capital market is going through a transitional period


Mohammad A Hafiz, President of the Bangladesh Merchant Bankers’ Association, has said the conditions imposed by the government for the refinancing scheme are too tough for the merchant banks to follow. He made the observation in a recent interview with New Age. Interviewed by Ahmed Shawki.


New Age: What is the present condition of the capital market?
Mohammad A Hafiz: The . This is the way most people like to describe the present condition of the capital market of Bangladesh after the 2010-11 crash. I personally think the present capital market is just the way it was before. In every capital market, or in any other market, there is this cyclic trend of ups and downs. You cannot consider the highest ever index as a benchmark until the other components are the same. The market is a result of the all related components including investors’ mindset, regulatory regime, and the country’s economic and social condition. The way those components perform should reflect in the market situation. As long as the reflection is accurate the market is good.
The important thing is that the people are becoming more knowledgeable these days and the market is becoming more professional.
NA: How do you see the 2010-11 market crash?
Hafiz: That (a market crash) was apprehended after a boom as the stakeholders failed to cool the market in time. There were too many investors trying to buy too few shares. The retail investors were interested as banks came up with huge investment. When the banks pulled out their investment within a short period of time, for whatever reasons, the market collapsed. There is a common perception that only small-time retail investors were affected by the crash. But the institutions directly engaged with the market like stock brokers and merchant banks also suffered, and are still suffering, for the crash.
NA: What is the condition of the merchant banks after the 2010-11 market crash?
Hafiz: It is not good at all. We are in a very tight spot as we have several pressure points at the same time. We have our clients, our sponsors and the regulators to whom we have responsibilities. Often the interest of the parties is not mutually exclusive and we have to deal with that. Our clients lost their money and so did we, but at the same time we have to answer our sponsors. The government announced stock market refinancing scheme focusing the small-time retail investors which are also facing some problems in the implementation level.
NA: What are the problems in the refinancing scheme?
Hafiz: The conditions for the refinancing scheme are very tough for the merchant banks to follow and that is the core problem. The government made the loan conditions so tight that most of the merchant bankers find that hard to comply with. We proposed the government to provide Tk 900 crore as corporate loan but the government approved it against the affected small-scale investors’ accounts. But the merchant banks are institutions and they will not be vanished with the money. The government have to trust us as we have no other way but to repay the loan. So we need a little flexibility.
NA: Do you think the government conditions are intended to make sure that the money is spent on the small retail investors?
Hafiz: That is the core essence of the refinance scheme and we are willing to take that loan knowingly. The small investors are in the market just for making money individually. We are here to institutionalise the capital market in the long run. The government thinks the retail investors need compensation more badly than us which we agree. We know our clients and we know who need what amount of money. We also know we are able to ensure better return. So the government should allow us perform the duty. We have clients who don’t show up just because he owes us money; now where we can find him and give him the loan.
NA: Do you think the reckless loan distribution by the merchant banks during the market boom was the reason for the government conditions in refinancing scheme?
Hafiz: These things are hard to generalise. Some merchant bankers might have violated the loan conditions as per the securities law but so far the market regulators did not charge any merchant bank for that. The fines imposed for breaking loan rules are on the stock brokers.


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