Many employees like Aminul Haque, a government employee, came to the booming share market to invest in bank shares expecting quick returns before quitting the scene. He infact came into this business two months ago and invested 2 lac taka already expecting big hand. All was well for the 29-year-old until December 19 last year when the premier bourse lost over 550 points, which ate up a significant part of his profits. But he did not worry after his mentor, who works for a brokerage house, assured him of a quick turnaround.

An irregular investor, Haque, with an MSc in biochemistry from a public university, stayed put, but he saw his hopes shattered in a storm that brought the stockmarket down to its knees. "I have lost half of what I was worth. This is dangerous. I never thought I would have to witness such disaster," he told The Daily Star over telephone. "I came to the market with a particular target, but all my hopes have been dashed," admitted a demoralised Haque. His comments came after the authorities stopped trading of both Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) before noon yesterday following a freefall of share prices on the bourses that stomached the highest-ever single day drop in indices.

The closure came at 11:50am after the benchmark index of the premier bourse, DGEN Index, slumped by 660 points and CSE Index, 914 points -- their highest drops. Haque was not alone. Thousands like him rushed to the markets with little knowledge about the share market, fundamentals of the companies they were investing in, despite repeated warnings from analysts. Nusrat Jahan, a student of Bangladesh Islami University, invested Tk 4.5 lakh last year and made it to Tk 10 lakh during the period. Now her current portfolio value went below the initial investment. Small-time retail investors blamed the regulator for failing to act fast enough, saying many have lost at least half of their investments due to the market collapse.

Mohammad Shihabuddin, who works for an audit firm, had the prices of his shares just halved. "Many of my colleagues are involved in the trade and they all are in shock," he told The Daily Star by phone. He said he understood that a correction was due, but it happened melodramatically. "The correction should take place gradually, not through drastic ups and downs." General investors said the regulator should have taken the closure decision earlier or during the first few minutes of yesterday's trade, which would have help avoid the doom.

"Many investors like us would have been able to avoid the slump if the decisions had been taken earlier. The collapse has already made many of us losers," said Utpal Kumar, an investor. Utpal, also a student, said the market has collapsed, as the central bank has imposed restrictions on banks and other financial institutions investing in the market. "The financial institutions, particularly banks, have already over-invested in the market. But following restrictions from Bangladesh Bank, they are not investing anymore. The market will go up once they start trading again." He said the investors who joined the market in November and December have been particularly affected. "Most of them have lost up to 70 percent on their investment."

Jewel Islam, a stock investor since 2006, blamed the authorities for the slump, as "they talk too much", doing more harm than good to the market. The 29-year-old business graduate said the banks which represent the bellwether stocks were responsible for the catastrophe. "They have been investing heavily in the market putting aside their core business."  anks logged as high as 90 percent growth in their operating profit in 2010, largely riding on the stockmarket boom. Many banks earned a big portion of their profit from the stockmarket. A bank involved in Islamic banking made a profit of about Tk 400 crore, of which Tk 100 crore came from its brokerage business.

He said many investors have withdrawn their money before the Eid. "As the marking is nose-diving, they will invest now. Small investors like us will suffer most," said Islam, who has invested Tk 2 lakh in the premier bourse. Shariful Alam, another small investor, said the market has fallen as investors are withdrawing money from the secondary market and diverting to new initial public offerings. Nahid Hasan, an investor, who also has lost about half in prices of his shares, said the decision was right, but it should have come earlier. He said his portfolio was valued at Tk 10 lakh just before the latest round of slumps. "It is now worth Tk 5 lakh only."

News: The Daily Star/Bangladesh/11 Jan 2011

Grameen Bank has been appointed by a Chittagong-based packaging company as their managing agent in a deal, dating back 20 years, giving the poor borrowers' bank a job having nothing to do with its core business. Muhammad Yunus signed the deal for Grameen Bank, granting the microlending entity all rights-just ownership aside-to run and manage the packaging business, reports bdnews24.com. His father, Muhammad Dula Meah Saodagor, represented Packages Corporation as its managing director, in an apparent case of conflict of interest. He along with his sons owned the company incorporated in 1961 as Pakistan Packages Corporation.

The family still owns the company, and Yunus still sits on the board as a shareholder director, according to documents obtained by the news agency. Signed on June 17 1990, the contract was initially valid for 15 years. Three of Yunus' brothers-Muhammad Ibrahim, Muhammad Azam and Muhammad Jahangir-signed as witnesses to the contract between the father and the son who would secure a Nobel peace prize 16 years later. In 1997, the management of the packaging business was handed over to Grameen Shamogree, a sister concern of Grameen Bank.

"The handover," Grameen Bank deputy managing director Nurjahan Begum said in response to bdnews24.com queries sent to Yunus, was executed "with consent of the owners" of Packages Corporation. The Grameen Bank managing director has evaded the news agency's requests for a face-to-face interview. Meanwhile, Prof Muzaffer Ahmed, an economist and former chairman of the trustee board of Transparency International, Bangladesh, has sharply reacted over the Grameen Bank controversy in selecting beneficiaries.

"I do not consider it an act of any moral standards," said Prof Ahmad.

"Nor was it legal," he said.

"Grameen Bank was mandated to dispense micro loans for poor people. Getting into such a contract with a family business was not morally right," said Prof Ahmad.

Mr Muzaffer, also chief of Sujan, a citizens' platform for justice, asked, "Why didn't Bangladesh Bank take any action then? Why didn't those who ran the government at the time take any steps?"

News Source: Financial Express/05 Jan 2011

Islami Bank Bangladesh Ltd (IBBL) collected deposit of Tk 291.31 billion until December 31, 2010 with a rise of Tk 47.66 billion in a year from January 1 making 20 percent growth. Total investment of the bank reached Tk 291.46 billion during the same period increasing Tk 52.46 billion with 22 per cent growth compared to that of the previous year.

IBBL handled foreign exchange business of Tk 609.33 billion with an increase of Tk 146.96 billion in a year taking the growth rate to 32 per cent including import of Tk 246.33 billion, export of Tk 148.43 billion and remittance of Tk 214.58 billion enhancing Tk 85.10 billion in import, Tk 42.00 billion in export and Tk 19.86 billion in remittance respectively against the same period of the last year. The disclosure was made at the bank's year-end meeting at IBBL head office in the city recently, according to a press release.

IBBL deputy managing directors Mohd Shamsul Haque, Md Habibur Rahman, Md Setaur Rahman and Md Nurul Islam, among other top executives, attended the meeting with Managing Director Mohammad Abdul Mannan in the chair.

News: Financial Express/05 Jan 2011

Professor Mohammed Farashuddin, Former governor of Bangladesh Bank, has called for imposing a strict limitation on scheduled banks' investment in Initial Public Offerings (IPOs) only and bringing them out of pre-IPO investment as it is creating only asset inflation in the economy. He was speaking at tenth Nurul Matin Memorial Lecture on 'Ethics in Banking', organized by Bangladesh Institute of Bank Management (BIBM) in a city hotel Monday.

"Banking Ethics has been put in the cold storage by commercial banks in diverting good part of their advances in non-IPO shares and making abnormal margin in a chaotic stock market", Dr. Farashuddin said, adding that such practice bars stock market's capacity of capital or equity formation. "Limiting commercial banks' involvement in IPOs and ensuring the limited exposure is channeled through properly formed and supervised subsidiaries should be in order along with regular surveillance on Small and Medium Enterprise (SME) fund to stop its diversion in consumer goods and non-IPO investment", he suggested.

Dr. Farashuddin also asked for scrutinising SME fund's performance not only in terms of providing working capital, but also from the aspect of creating newer enterprises. He also emphasised on further strengthening of Bangladesh Bank's supervisory capacity as well as additional operational independence and asked the government's attention for separate compensation package for central bank officials. "BB should be relieved from the duty of 'auxiliary assistance in socio-economic development' which will enable it to concentrate more on monetary policy and bank supervision objectives", Dr. Farashuddin said.

The speaker brought the issues of depositor's representation in board of directors, double-digit spread of interest, political intervention in sanctioning and waiving loan, excessive loan taken by equity-holder directors, commercial bank's BASEL-II compliance in his speech. Dr. Farashuddin also suggested for forming Asset Management Company for dealing with Non-performing Assets (NPAs), offloading nationalised commercial bank's share and exposing them in competition for efficiency, BB's involvement in assessment of scheduled bank's chief executives, limiting spread of interest to 6-7 per cent, and finalising merger law and enforcing it simultaneously with capital adequacy requirement. Concurring with the speaker's suggestion, BB governor Dr. Atiur Rahman, chair of the function, said, "BB is pursuing equitable and inclusive growth by engaging private banks in socially desirable lending and creating ground for tomorrow's profitable business".

Former governor A.K.N Ahmed was present as the chief guest and suggested to ensure ethics in policy making level in banks and keeping banks' growth in line with society's growth. BIBM director general Dr. Toufic Ahmad Choudhury welcomed all. Bankers, eminent economists, representatives from civil society and BB top officials were also present.

News Source: Financial Express/05 Jan 2011

A leading global financial services company has lauded Bangladesh Bank for its monetary intervention activities last year, terming the central bank's policy proactive. In conformity with the declared policy stance, BB's monetary policy operations during the early part of the year remained light fingered rather than heavy handed, said Citi in its annual monetary update.

The BB move did not impede pick-up in output, exports and new investment activities, it said. Purchases of foreign exchange inflows from the market to retain the taka on a slight undervaluation bias for export competitiveness were only partly sterilised by liquidity management operations. "Besides direct liquidity management operations, the permitted open exchange positions of banks were widened. Sectoral credit flows were promoted or discouraged eclectically, while credit flows to under-served productive sectors like agriculture and SMEs were promoted."

The BB policy also discouraged expansion in credit for unproductive ostentation, conspicuous consumption and speculative purposes, according to Citi. However, with the increase in inflationary pressure, the central bank was seen to gradually tighten policy measures. In August 2010, it raised the repo rate from 4.5 percent to 5.5 percent and the reverse repo rate from 2.5 percent to 3.5 percent. Earlier in May, it raised the cash reserve requirement (CRR) by 50 basis points (bps) to 5.5 percent, for the first time since September 2005, to mop up Tk 20 billion of excess liquidity.

In December, the CRR was further raised by 50 bps to 6 percent for the commercial banks to curb inflationary pressure on the economy, the Citi update said. The central bank moves also kept the taka under under depreciation pressure. The BB has regularly intervened in the dollar/taka market to maintain the competitiveness of the exchange rate, curbing tendencies for excessive volatility. The nominal exchange rate remained below 69.60 level until late August, with the BDT depreciating only 0.48 percent against the dollar from the opening level of 69.27.

However, increased demand of the greenback to meet import payments took the dollar/taka rate to break 70 level during late September. The taka depreciated 1.34 percent in September alone. With buoyant demand, and the central bank's stance to keep the taka undervalued, dollar/taka rates rose to 70.8450, the highest level during the year, by the end of October. After a moderation in November, the nominal exchange rate started to rise again in December, and hovered near 70.69 levels in direct trading during the middle of the month, registering a depreciation of 2.05 percent over the year.

Call money rates remained stable during most part of the year due mainly to the excess liquidity in the market, which stood slightly lower at Tk 345.0 billion at the end of June 2010, down from Tk 347.6 billion at the end of June 2009. However, the CRR hike in May, and increased seasonal demand ahead of Eid festivals during September and November led call money rates to rise to double-digit levels, the update said. "Although those increases were corrected within a short span of time, the second CRR hike of the year in December led the overnight rates to soar significantly."

On December 15, the first day of new cash reserve maintenance, call rates skyrocketed when some private commercial banks sought large funds to meet the reserve requirements. Call money rate rose as high as 180 percent, breaking the earlier record of 150 percent hit on March 30, 2006. However, the rates subsided over the following weeks to settle below 20 percent level. The downward shift in the yield curve during 2009 was reversed last year due to excess liquidity in the banking system, Citi said.

The yields for government securities of all tenors increased from their December 2009 levels. The yields of short-end bills with 91 days, 182 days and 364 days tenor rose by 225 bps, 120 bps and 89 bps respectively. On the other hand, rates of mid- and long-end government bonds with 5 years, 10 years, 15 years and 20 years tenor increased by 20 bps, 75 bps, 43 bps and 35 bps respectively. The increase in yield was highest in the 91 days bill, which added 225 bps. Citi in its update also put focus on international markets and major interest rates.

Central banks of the major economies had slashed rates to historic low levels by the middle of 2009 to push out liquidity to try igniting economic growth, it said. The Bank of England, European Central Bank (ECB), Bank of Canada, Swiss National Bank, Reserve Bank of Australia, Reserve Bank of India, all cut their benchmark rates by 25 to 175 basis points in 2009. The Federal Reserve (Fed) and Bank of Japan (BOJ) had already been at their record low levels of benchmark rates at 0 to 0.25 percent and 0.1 percent respectively after their December, 2008 rate cuts. While the central banks of Australia and Norway started hiking rates from late last year, 2010 witnessed the RBI, the Peoples' Bank of China and the Bank of Canada joining the group.

For most of 2010, the fundamental story behind Euro (EUR), when investors were actually looking at it, was all about sovereign credit risk, Citi said.

News: The Daily Star/03 Jan 2011