Regulator goes tough on poor performing investment banks

• Status of the merchant bankers
• 65 merchant banks got licences
• 10-12 IPOs get approval every year
• Some banks are under BSEC observation
• The majority of them manage portfolios only
• BSEC is strict on enforcing conditions

The Bangladesh Securities and Exchange Commission (BSEC) has sought information from merchant banks and portfolio managers on their performance as the regulator believes many of the institutions are not fulfilling their licensing conditions.  

A merchant banker or a portfolio manager engages in the area of issue and portfolio management of its own and clients as well as underwriting – a process through which an individual or institution takes on financial risk for a fee.

As per licensing conditions effective from 2010, a merchant bank must submit documents for at least one initial public offering (IPO) to the BSEC every two years.

Additionally, it will have to create five new client portfolios in addition to its own portfolios every year.

BSEC officials said some merchant banks cannot fulfil their licensing conditions regarding issue and portfolio management. 

A dozen of merchant banks are active in all activities – issue and portfolio management as well as underwriting – while the majority of them manage portfolios only.

The commission will look into the business activities of those merchant banks and portfolio managers, added the officials.

After getting information, the commission is likely to bring some merchant banks under an investigation to find out the reasons behind their poor performance, the officials said.

Sources said between 2010 and 2020, some merchant banks were less active in issue management.

They are AB Investment, Abaci Investments, Agrani Equity and Investment, AIBL Capital Management, Bangal Investment, BLI Capital, City Bank Capital Resources, Cosmopolitan Finance, Exim Islami Investment, Green Delta Capital, GSP Investment, Hal Capital, IIDFC Capital, Islami Bank Capital Management, Jamuna Bank Capital Management, Meghna Capital Management, Race Portfolio & Issue Management, Riverstone Capital, Roots Investment, Strategic Finance, and Uttara Finance Capital Management Limited.

Some merchant banks such as City Bank Capital Resources have been performing well in the bond market.

On the other hand, ICB Capital Management, AFC Capital Limited, Imperial Capital, LankaBangla Investments, Prime Bank Investments, Banco Finance & Investment, IDLC Investments, AAA Finance & Investment Ltd are mostly active in bringing new issues to the market, sources said.

BSEC has requested Bangladesh Merchant Bankers Association (BMBA) to collect information from its members in a directed format and submit it to the regulator within the next five working days.

Market insiders said 65 merchant banks are working in the capital market which sees only 10-12 IPOs every year.

BMBA President Saidur Rahman said the licensing conditions are not practical as only a few IPOs get approval every year.  

Merchant banks should be active in their respective fields to make the capital market vibrant, he added.   

Mahbub H Mazumdar, managing director of AFC Capital, said merchant banks should comply with the licensing conditions properly as they are the lone gateway for new companies to enter the market.

He said merchant banks having poor performance should appoint skilled manpower to play their due role and the regulator should appreciate the good performing investment banks.

BSEC Executive Director and spokesman Mohammad Rezaul Karim said at first, the commission wants to know the status and then, it will find out the reasons why some merchant banks and portfolio managers failed to comply with licensing conditions.

After getting all documents, the commission will scrutinise them and take the next steps, he added.