GENESIS OF THE LIQUIDITY CRISIS AND THE LOSS OF CONFIDENCE

BMBA estimates TK7,000 crores of margin loan is currently stuck due to the market downturn. This loan is not being serviced and is on the verge of becoming bad loan
These margin loans were extended to our honorable clients during 2009-2010

Due to the continued market downturn, some of our valued clients now have negative equity in these portfolios. As a result, our clients are reluctant to invest further into the market Merchant Banks cannot further support our clients in these portfolios given the lack of available funding for us Merchant banks need capital support to participate in the market PLUS help our distressed clients

INCENTIVE PACKAGE FOR SMALL INVESTORS

IMPACT TO MERCHANT BANKS

In total 41,992 portfolios will require interest exemption on margin loan BDT 65.11 crores of interest are to be exempted as shown below:
No of Investment Accounts Loan for Re-scheduling Interest Amount to be exempted Interest Amount to be Rescheduled 41,492 BDT 913.90 crores BDT 65.11 crores BDT 65.16 crores

Due to the margin loan rescheduling, interest exemption, and charge of interest at lower rate and at simple interest method merchant banks will have to incur a loss of BDT 340.75 crores in the next 3 years as shown below: Amount in crore BDT
Interest that merchants banks have to pay to borrowers @17% compound interest Interest that will be collected from the investors @10% simple interest Loss that merchant banks have to bear in 3 years from interest spread only Loss from interest exemption Total loss merchant banks are to bear 549.81 274.17 275.64 65.11 340.75
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EXAMPLES OF HOW SUCH A CRISIS HAS BEEN RESOLVED IN OTHER COUNTRIES

Will show examples of how bailout funds have been given to Merchant Banks to support the market India China USA Nigeria

SO BMBA RECOMMENDS
New Fund Injection through a Refinancing Scheme from Central Bank against Margin Loan Portfolio especially the negatively affected ones
Such a scheme will inject much-needed funds into merchant banks and other stock market stakeholders to support the stock market Merchant Banks can use these funds to make fresh investments into the market

Fiscal Incentives from NBR: Allow Portfolio Impairment costs and costs associated with Interest Waiver to Small Investors as Allowable Expenses under the Tax Rule
Such fiscal incentives will allow merchant banks to reduce and defer the impact of negative equity in client portfolio and thereby allow these clients to continue their trading activities and thereby support the current market