Row between BB and BSEC takes toll on stock market

The stock markets suffered from the persistent row between the Bangladesh Bank and the Bangladesh Securities and Exchange Commission (BSEC) over four issues.

The issues are unclaimed dividends, bank’s stock market exposure, bond exposure, and dividend disbursements by the loss-making banks and NBFIs.

“The tussle made the investors jittery in putting fresh bets on the stocks, creating volatility in the market,” said a top stockbroker.

Analysts say it is one of the reasons for the downslide in indices. The misunderstanding should be resolved immediately as soon as possible for the betterment of the market, they said.

While talking to The Business Post, BSEC Commissioner Shaikh Shamsuddin Ahmed on Monday said, “We sat with the central bank on the last day of last month. They were positive about the issues. Two weeks have already passed since then. But we did not get any response from the central bank yet.”

The two regulatory bodies need to be cooperative for the stock market, he said.

DSEX, the key index of the Dhaka Stock Exchange, declined 83 points in the last three sessions on Tuesday.

The trading activity continued to plunge with the turnover plunging to over eight-month low on Monday.

On November 30, the BSEC sat with the BB to settle the differences created over the issues.

After the meeting, the BSEC said that the BB would allow banks to transfer unclaimed dividends to the market stabilisation fund after bringing some amendments to the capital market stabilisation rules.

The BB agreed to relax the rules on banks’ investment in stocks, according to the securities regulator.

The stockmarket exposure ceiling for a bank is 25 percent of the capital, according to the banking company law.

Following the meeting, stocks rebounded sharply with the benchmark DSEX index surging the largest single-day gain in 19 months. It soared more than 143 points or 2 per cent to settle at 6,847.

However, the central bank in a statement on December 1, said, “No decision has been taken yet about the issues but some media outlets reported about the outcome of the meeting by quoting the BSEC delegation, which was not accurate.”

The unclaimed fund transfer by the banks and NBFIs to the capital market stabilisation fund (CMSF), and dividend disbursements by the loss-making banks and NBFIs were contradictory to the laws, which was told the BSEC delegation during the meeting, it said.

The BB’s clarification left a negative impact on the market. But it started to recover losses after the news that the finance ministry would sit with BB, BSEC, and NBR over the capital market situation.

At the meeting held on December 7, the BB said the banks and non-bank financial institutions were not allowed to transfer unclaimed dividends to the capital market stabilisation fund as per the Bank Company Act 1991.

Recently, the BSEC allowed banks and NBFIs to declare dividends from the current year’s profits despite having cumulative losses. But the BB instructed the banks not to follow the BSEC order.

Market expert Abu Ahmed said it is disappointing that no consensus has been reached yet on the contentious issues. “The two regulators will minimise the differences through speedy discussions.”

The conflict between the central bank and securities regulator is not only seen in Bangladesh, but many other countries including India and the United States, said the market expert. The finance ministry should always play an important role in resolving the disputes, he said.