The central bank has defined merchant banks as non-banking financial institutions (NBFIs), creating confusion over the status of the merchant banks, which are involved in share market activities, not in the financial sector.

Bangladesh Bank in a letter to the Securities and Exchange Commission (SEC) on June 6 said the merchant banks are considered as 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 institution.

The SEC on June 10 forwarded the central bank's letter to Bangladesh Merchant Bankers Association (BMBA), a platform of the merchant banks.

Earlier, the stockmarket regulator on May 20 sought the banking regulator's opinion about the status of merchant banks.

The finance minister in his budget speech also treated the merchant banks as NBFIs, and proposed to reduce their income tax from 42.5 percent to 37.5 percent.

Later, the BMBA at a press briefing said the government's offer to reduce the income tax for merchant banks was met with a wave of confusion, as they were already paying the lower rate of 37.5 percent.

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

The National Board of Revenue (NBR) wrote a letter to merchant banks putting them in the same classification as the rest, an idea which was met with vehement objections from merchant bankers. The plan did not come into effect.

“The merchant banks have always paid 37.5 percent tax while it is 42.5 percent for banks and non-bank financial institutions,” Mohammad A Hafiz, president of BMBA, told the press briefing.

“We are also not allowed to take deposits, disburse loans and perform other financial activities what NBFIs can,” Hafiz said.

Merchant banks, as opposed to 'banks and non-bank financial institutions', are not licensed by the central bank but by the SEC, he said.

There are 43 full-fledged merchant banks in the country now.

The Daily Star/Bangladesh/ 14th June 2012