Merchant banks are different from traditional non-bank financial institutions, the central bank said, putting an end to confusion over the status of such banks.

Bangladesh Bank in a letter to the Securities and Exchange Commission on July 24 said the merchant banks are registered under the SEC Act, 1993.

The BB letter said, as the merchant banks do not take deposit from clients, Financial Institution Act, 1993 will not be applicable to merchant banks. The act is applicable to traditional NBFIs.

The letter also said the merchant banks will not need to take licences from the central bank, and will be regulated by the SEC, the stockmarket regulator.

Earlier, the central bank in a letter to the SEC on June 6 said the merchant banks are considered NBFIs as per Section 2(b) of Financial Institution Act, 1993. A clause of the act included merchant banks, among others, in the category of financial institutions.

The stockmarket regulator on May 20 sought the central bank's opinion about the status of the merchant banks, after the National Board of Revenue (NBR) put the merchant banks in the NBFI category.

The finance minister in his budget speech had also branded the merchant banks as NBFIs, and proposed a cut in their income tax from 42.5 percent to 37.5 percent, deepening the confusion over the status of such banks.

Later, the merchant bankers had said they are involved in stockmarket activities, not in the financial sector.

The merchant banks provide a number of financial services, ranging from underwriting shares to lending to stock investors. Due to their multi-faceted roles as financial institutions, they are not classified in the same bracket as 'banks and non-bank financial institutions'.

Presently, there are 52 merchant banks of which 43 are full-fledged. The full-fledged merchant banks' functions include underwriting, issue management, portfolio management and lending to stock investors.

The Daily Star/Bangladesh/  13th Aug 2012