The central bank is reviewing the Securities and Exchange Commission's proposal to allow foreign brokerage houses to take share-trading commission for the investors they bring to Bangladesh.

The SEC's reasoning behind the proposal is that many brokerage houses are interested in bringing in foreign investors to Bangladesh -- but only in return for commission.

But the current rules do not permit the local brokers who act as agents for foreign brokerage houses to share commission with them.

The SEC sent a proposal to the Bangladesh Bank a year ago -- but it is yet to be approved. The SEC raised the issue at yesterday's meeting with BB Governor Atiur Rahman, representatives of Insurance Development and Regulatory Authority (IDRA) and other regulatory bodies.

Rahman right away called in the officials of the related departments and directed them to make a decision after a quick assessment, an official present at the meeting told The Daily Star.

Salehuddin Ahmed, the then BB governor when the proposal was made, said the permission for commission for brokerage houses abroad would be given but with strings attached so that “capital flight do not occur in the guise of commission”.

The conditions were: foreign brokerage houses must maintain full-fledged offices in Bangladesh, their commission cannot be more than the local brokerage houses and they cannot repatriate the full commission amount.

Also discussed at yesterday's meeting was the impending BB circular which stipulates all banks and non-bank institutions to forward reports on suspicious transactions to the central bank's financial intelligence unit.

News: The Daily Star/Bangladesh/22-Nov-12

Most listed commercial banks are going through hard times in the second half of the year as a huge provisioning against non-performing loans pushed them to the negative profit zone.

Some banks even incurred losses in the third quarter as their core banking business was hit by low credit growth, according to their quarterly disclosures made public recently.

Of the 30 listed banks, 16 registered negative net profit growth year-on-year in July-September, six incurred losses and seven made positive growth.

Losses from the investment in the stockmarket also added to their worries, bankers said.

“Revenues fell in July-September mainly for two reasons,” said K Mahmood Sattar, managing director of The City Bank.

Interest rates were high, but demand for loans was low; and the banks also had to set aside huge funds to stay safe against classified loans, he said.

In the July-September period, the total specific provisions for classified loans at all listed banks doubled to around Tk 1,200 crore, compared to the second quarter.

Sattar said most of the burden of non-performing loans came from the ship-breaking industry.

“Steel prices dropped faster locally compared to the international markets,” he said.

He said, except for a few, net profit of all banks declined compared to the same period last year; even some of them incurred losses during the third quarter.

“The situation may worsen further in December when the new regulations on loan provisioning will come into effect,” he added.

BRAC-EPL Stock Brokerage said the third quarter saw the impact of provisioning like no other previous quarters and it became the single most vital element, affecting the banks' profitability.

“Loan provisioning is the biggest chunk of total provisions and in the third quarter it witnessed a skyrocketing growth on the backdrop of new loan provisioning guideline,” the stockbroker said in an analysis.

The new guideline will shorten the timeframe for loan classification, causing provisions to rise, even if the total amount of classified loans remains the same.

In June this year, Bangladesh Bank made it mandatory for banks to classify loans for non-repayment within three months instead of six months earlier, amid opposition from banks. The new rules aim to reduce the number of willful defaulters and benefit both banks and borrowers.

“Banks with medium or low asset qualities started to charge higher provisions early to smooth out their net profit even though one more quarter is left before the guideline will become effective,” said the BRAC-EPL analysis.

Nurul Amin, managing director of NCC Bank, said the negative earnings or losses were for temporary reasons, including higher loan provisioning and the new regulations, poor business and lower credit growth.

“Although the banks fared badly, I am optimistic as the demand for private sector credit will increase in the last quarter, helping the banks to maintain profitability like previous years,” said Amin, also the president of Association of Bankers, Bangladesh.

Ali Reza Iftekhar, managing director of Eastern Bank, also said majority of the banks' income from core business dropped significantly.

In addition, he said, many of the banks incurred losses from their investment in the stockmarket.

Although the banks' average exposure to the stockmarket remained low at 3 percent of their liabilities, the continuous fall in stock prices hit the portfolio of the banks and their clients.

News: The Daily Star/Bangladesh/22-Nov-12

A 11-member delegation of Woori Bank led by its President and CEO of Lee Soon Woon call on Bangladesh Bank Governor Dr Atiur Rahman at the latter’s office in Dhaka Tuesday. During the meeting, they discussed various matters including banking, industries, trade and investment.

News: The Daily Sun/Bangladesh/21-Nov-12

The non-resident Bangladeshis can directly invest in the Bangladesh Fund, which was floated last year following the stockmarket debacle.

The NRBs can buy the units of the fund by using their Non-Resident Investors Taka Account (NITA).

The permission came at a meeting of the Securities and Exchange Commission yesterday with its Chairman M Khairul Hossain in the chair, according to a press statement.

Earlier, ICB Asset Management Company, the issue manager of the fund, requested the regulator to allow investments from the NRBs in the fund.

Before the permission was given, the NRBs were allowed to invest in the open-ended fund as foreign investors.

The government launched the Tk 5,000-crore Bangladesh Fund after the market debacle early last year with the Investment Corporation of Bangladesh (ICB) as the lead sponsor.

Seven other sponsors were Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, Bangladesh Development Bank, Sadharan Bima Corporation and Jibon Bima Corporation.

The sponsors contributed Tk 1,500 crore to the fund, while the rest Tk 3,500 crore are kept for public.

The open-ended mutual fund, a professionally managed collective investment scheme with unlimited lifetime and size, was approved by the SEC on May 4 last year and the public subscription started in October the same year.

The fund manager pools money from many sponsors or investors through its selling agents and invests it in stocks, bonds and short-term money market instruments, and pays out dividends to the unit holders annually.

At yesterday's meeting, the SEC formed two separate committees to modify public issue and rights issue rules.

The panels will advise the commission within the next one month which changes should be brought to the rules.

The two-member committee on public issue rules comprises the commission's Executive Director M Hasan Mahmud and Director Mohammad Rejaul Karim, while the two-member committee on rights issue rules comprises directors Kamrul Anam Khan and Prodip Kumar Basak.

The stockmarket regulator also formed another two-member panel on formulation of a guideline on asset revaluation of listed companies.

The committee, comprising SEC directors Mahbubul Alam and Abul Kalam, will submit a set of recommendations on the guideline to the commission within the next one month.

The SEC also formed a two-member inquiry committee to investigate the irregularities of NBL Securities.

Earlier, the Dhaka Stock Exchange through an investigation found irregularities in the NBL Securities and sent a probe report to the commission.

At the meeting, the regulator also imposed a Tk 1 lakh fine on each managing directors and each directors of Bangla Process Industries and Mita Textile for failing to submit audited financial reports for the year that ended in June 2011 to the commission.

The SEC also gave permission to Baizid Steel Industries, Kores (Bangladesh) and Popular Pharmaceuticals to raise their paid-up capital.

Baizid Steel Industries will issue three crore ordinary shares of Tk 10 each to raise its paid-up capital by Tk 30 crore to Tk 40 crore, while Kores (Bangladesh) will issue 1.3 crore ordinary shares of Tk 10 each to increase its paid-up capital by Tk 13 crore to Tk 23 crore.

Popular Pharmaceuticals will issue 64.61 lakh ordinary shares of Tk 100 each to raise its paid-up capital by Tk 64.61 crore to Tk 119.71 crore.

The SEC also gave a go-ahead to Sk Akijuddin to raise Tk 100 crore through issuing subordinated non-convertible unsecured bond.

With a two-year time for full redemption, only banks and non-banking financial institutions can buy the bond through private placement.

Face value of each unit of the bond will be Tk 1 crore. Race Portfolio and Issue Management is the sole lead arranger of the bond.

At yesterday's meeting, the SEC also extended the subscription period of MTB Unit Fund to January 31 next year.

News: The Daily Star/Bangladesh/21-Nov-12

Unlike the cash-strapped state banks, private commercial banks are sitting on surplus funds to the tune of Tk 20,000-25,000 crore, which indicates a slower demand for loans in the market, according to banks.

The loan-deposit ratio of the private banks has gone down significantly from the Bangladesh Bank's permissible limit of 85 percent. Call money rate has also come down to the single-digit level, which was unthinkable a few months ago.

Top bankers identified a set of reasons for an increase in liquidity in the banking industry.

The reasons include: infrastructure constraints, a low demand for loans, high lending rates, new rules on provisioning, tightening of imports and consumer loans, a decline in government's borrowing from banks, a rise in remittances and availability of loans from foreign sources.

The central bank's new rules to devolve investment in government securities to all banks from primary dealer (PD) banks alone created some funds for the PD banks.

“Imports and the private sector's demand for loans have gone down. But the growing tendency to borrow from foreign sources has created the surplus fund,” said Nurul Amin, managing director of NCC Bank.

Amin said local private companies borrowed $2 billion from foreign sources this year.

He said many banks are now investing in short-term treasury bills to earn something from their excess liquidity.

NCC Bank's present loan-deposit ratio is at 77 percent, meaning the bank gave Tk 77 as loans against a deposit of Tk 100.

The ratio is 71-72 for Mutual Trust Bank, which reflects a poor demand for loan.

“Disbursements are substantially lower than the credit facility in place,” said Anis A Khan, managing director of the bank.

His bank's surplus money is at around Tk 700-800 crore.

Khan said the government's borrowing from the banking sector has declined in the last 4-5 months. He sees the central bank's measures regarding the PD banks have also reduced the liquidity pressure on them.

Helal Ahmed Chowdhury, managing director of Pubali Bank, said a rise in remittances and a fall in imports have created some additional funds for the banks.

Chowdhury said his bank has nearly Tk 1,000 crore unused funds now.

SA Farooqui, managing director of Standard Bank that has Tk 800 crore unused funds, said a substantial reduction in import of food grains and 'any purpose loan' has contributed to an increase in the banks' funds.

Shafiqul Alam, additional managing director of United Commercial Bank that has Tk 1,000 crore in surplus funds, said they have been facing a shortage of borrowers in the call money market.

The call money rate, which was 10.21 percent on November 5, went down by nearly 2 percentage points to 8.26 percent on Monday.

central bank data shows excess reserves, which are equal to the balance of the scheduled banks' deposits held with the BB minus their cash reserve requirement or CRR, have also increased to Tk 18,011 crore as on Monday from Tk 14,520 crore on Tuesday last.

Muklesur Rahman, deputy managing director of Eastern Bank, explained the situation a bit differently.

“Banks have concentrated more on recovery than lending. They are busy with their housekeeping,” Rahman said.

News: The Daily Star/Bangladesh/21-Nov-12