Brokers get extension to provision unrealised losses

The Bangladesh Securities and Exchange Commission (BSEC) has extended the time limit for the ninth time for broker-houses and merchant banks to reserve provisions against unreimbursed losses due to revaluation in their own and customer portfolios.

This extension was approved at a commission meeting presided over by BSEC Chairman Shibli Rubaiyat-ul Islam.

According to the new guidelines, broker-houses and merchant banks will now get the chance to take advantage of this facility until the end of December 2025. The previous deadline was December 31, 2023.

Earlier on July 18, 2020, the stock market regulator decided to extend the provision until December 31, 2023, following the plea of the DSE Brokers Association of Bangladesh and Bangladesh Merchant Bankers Association, according to a statement issued by BSEC.

The provision against uncollectible losses was first introduced in 2013 through a notification from BSEC stating that merchant banks would be able to keep provisions at a rate of 20 per cent instead of the standard 100 per cent in case of revaluation losses. The provision was supposed to be held in five equal quarterly instalments from December 31, 2012, to December 31, 2013.

Since then, the time limit for reserving provisions has been extended multiple times, with the first extension granted in 2014 for a year. The period was further extended from 2015 until December 31, 2016, due to the worsening situation of the market.

In 2017, although the market situation somewhat improved, merchant banks argued that more time was necessary to heal the wounds that had been created. Therefore, the period for the reservation of provisions was extended to December 31, 2017. However, the opportunity to save provisions was later further extended to December 31, 2018.

The period has since been extended several times, with the latest extension being until December 31, 2025. The decision to extend the time limit was made in response to the poor state of the capital market affecting both merchant banks and brokerage houses. The extension of the time limit will allow these institutions to build up their provisions against losses, helping them to remain afloat and minimize their risk exposure.

Merchant bankers and stock brokers are optimistic about this decision by the BSEC and hope it will bring positive changes in the market. They thank the regulatory body for this timely initiative.