BMBA seeks policy supports to invigorate capital market

Bangladesh Merchant Bankers Association (BMBA) has sought further tax cut for the publicly traded companies in the upcoming national budget to revive the country’s ailing stock market.

The merchant bankers also demanded that banks’ investments in bonds and mutual funds be excluded from their stock investment exposure.

The BMBA, to this end, separately wrote to the National Board of Revenue (NBR) and the Bangladesh Bank to ponder their demands, citing the demands as much needed ones to help supply more capital to the stock market.

The reduction of corporate tax for the listed firms would cheer many more firms to go public, and subsequently, would help the government pocket more in revenue, said a letter signed by BMBA President Sayadur Rahman to NBR Chairman Abu Hena Md Rahmatul Muneem on Tuesday.

The listed companies, as per the existing rules, other than banks, insurers, financial institutions, tobacco companies, and telecom operators, have to pay a 20 per cent corporate tax.

On the other hand, non-listed firms have to pay corporate tax at a rate of 27.5 per cent.

Meanwhile, the BMBA, a prime stakeholder of the country’s capital market said the banks’ investments in bonds and mutual funds should be excluded from their stock investment exposure.

To encourage the long-term investment and ensure the sustainable development of the country’s capital market, the demands need to be realised, read another BMBA letter sent to Bangladesh Bank Governor Abdur Rouf Talukder the same day.

According to the BMBA’s letter, some banks had sponsored a few mutual funds and bonds in the past, but they were now showing less interest in sponsoring of these financial schemes.

This refers to that the inclusion of investment in mutual funds or bonds by banks and NBFIs in their stock exposure calculations is impeding the development and growth of the country’s capital market, the letter read.

The amended Bank Company Act 1991 allows a bank’s stock market exposure to up to 25 per cent of its capital, including it paid-up capital, share premium, statutory reserve, and retained earnings.

The BMBA president in the letter said mutual funds are managed professionally, while the investment in mutual funds is relatively safer as the price fluctuations of mutual funds are considerably less than in stocks.

Mutual funds are befitting for those investors having no or little investment learning and want to avoid the market volatility. So, if the rise in investors’ participation is sought for, the promotion of mutual fund investment is a must to this end, the letter stated.

The flow of institutional funds and mutual fund participation, according to the letter, remains very low in Bangladesh compared to that in other neighbouring countries.

In India, for example, the overall size of the mutual fund industry increased more than fivefold between 2012 and 2022 with the mutual fund investment accounts for nearly 9.4 per cent of the country’s household savings.

“If we can increase the flow of institutional funds into our capital market and mutual fund participation, the market will act more rationally, and the market volatility will also be mitigated, and hence the retail investors will benefit more,” BMBA president in the letter said.

He, on the other hand, said bonds provide a fixed income, while these investment tools are more suitable for those investors who want a stable cash flow.

Besides, companies can raise long-term funds to make capital investments by issuing bonds. So, if we can popularise bonds, both the investors and the issuers would greatly be benefited, said Sayadur Rahman.

As per the Company Act, all sorts of investments by banks in shares, corporate bonds, debentures, mutual funds, and other capital market instruments are included in the capital market exposure of banks.