Stabilisation Fund to inject fresh Tk250cr in stocks thru intermediaries
The Capital Market Stabilisation Fund (CMSF) is going to lend around Tk250 crore in fresh funds to stock market intermediaries for them to invest in the stock market.
At present, the CMSF has over Tk250 crore in cash available, which has been kept in a special notice deposit account at the Community Bank Bangladesh Limited.
According to officials, the CMSF will seek loan applications from the interested market intermediaries, and it will take no longer than 21 working days to disburse or reject the loan for each firm after receiving the application. The loan is likely to be disbursed by next month.
After the securities regulator's directives, the CMSF has finalised a borrowing guideline, and here are the dos and don'ts for the intermediaries interested in availing the loan.
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Borrowing guidelines
At a time, a stock market intermediary can avail of not less than Tk5 crore or not more than Tk20 crore. So, the CMSF seems able to provide loans to at least 50 intermediaries, which will enhance capacity to invest fresh funds in the market.
The borrower firm must ensure a deposit of the amount equivalent to the loan in its dealer account or own portfolio for investing in the stock market.
The interest rate of the loan will be the higher value of the six-month average of the fixed deposit receipt (FDR) rate in the banking industry.
A CMSF board member proposed to charge an additional 2% for management expenses. But it has not been finalised yet because the operations management committee of the board deems it unnecessary, as already the higher value of the six-month FDR rate average will be considered the interest rate.
Md Monowar Hossain, chief operating officer (COO) of the CMSF told The Business Standard, "Now, the stock market is facing a fund shortage. In this situation, the loan will help market intermediaries to be active in the market."
"Because the fund is entirely public money, we are acting as its custodian. And in order to protect public money, we will ensure a 100% collateral and bank guarantee from the intermediaries," he added.
CMSF's lending preference
As per guidelines, the CMSF will give preference to intermediaries who are involved in the financial literacy program, providing training to small investors, involved in social welfare activities, working with disabled people, protecting the environment, and following other corporate social responsibilities.
Intermediaries will get a preference for getting loans when the market is bearish instead of bullish. The tenure will be 180 days and renewable upon successful use of the loan amount and full payment of loan interest to CMSF.
Any stock broker or intermediary, which has deficiency in consolidated customers' account (CCA), not compliant with risk based capital adequacy and/or has had any punishment from the authorities in the last five years, will not avail the loan.
Also, an intermediary or any director of intermediary, who is a loan defaulter through CIB report, will not be eligible for the loan.
Investment guidelines
Intermediaries can provide margin loans to their clients as per policy. The single borrower exposure will be a maximum 5% of the total available fund for loan.
Another portion of the availed loan will be invested only in stocks that have been under the `A' category for five consecutive years.
About the CMSF
The CMSF, which was established in 2021, has been accumulating dividends under an umbrella in the purpose of stabilising the stock market by injecting fresh funds.
As on 2 May, the CMSF has received over Tk1,200 crore, of which Tk520 crore is cash dividend, and Tk693.10 crore stock dividend.
Earlier, the CMSF has already lent Tk225 crore to the Investment Corporation of Bangladesh (ICB) for investing in the stock market.
Country's stock market is facing various challenges such as lower participation of institutional investors due to a liquidity crisis.
The Bangladesh Securities and Exchange Commission (BSEC) has also been facilitating institutional investors by relaxing rules.
