Bank shares still at floor price despite healthy earnings

Stocks of 77 per cent of banks still remain stuck at their floor prices although most lenders secured healthy profit growth in the calendar year 2022.

Out of the 35 banks listed on the country’s premier bourse Dhaka Stock Exchange (DSE), stocks of only eight lenders traded above their floor prices, while shares of the other 27 lenders were at the floor price, as per the DSE data till Wednesday.

Of the eight banks whose shares are above the price floor limit, Al Arafah Islami Bank shares traded at Tk 25 per share, while Eastern Bank at Tk 33.10 each, Exim Bank at Tk 10.70, Islami Bank at Tk 32.70, Jamuna Bank at Tk 22.6, Midland Bank at Tk 13.6, Premier Bank at Tk 14.00, and Pubali Bank at Tk 25.90 on Wednesday.

Despite growing non-performing loans (NPLs), a series of loan scams, and the economic crisis triggered by the Russia-Ukraine war, most banks posted higher net profits in 2022 over the previous year.

Of the 35 listed banks, 22 lenders or 63 per cent registered healthy profit growth last year, while 13 others suffered negative growth in their net profits same year.

Talking to The Business Post, sector insiders said 63 per cent of the publicly traded banks posted higher profits last year mainly due to good earnings from import business and dollar trade amid a volatile currency market.

Significant gains from the treasury department, which deals with foreign exchange transactions in exports and imports, were the key driver of the profit growth, they added.

Though banks’ core business suffered in the sluggish economy, income from foreign exchange department jump due to the surge in the US dollar price against the local currency, they continued.

When a floor price is fixed, no company’s shares can be traded below the fixed price. If a company’s shares are traded at the floor price, then that is considered the lowest price of that share.

The securities regulator BSEC in July last year had imposed floor prices on all securities to prevent shares from falling beyond a certain level amid the domestic and global macroeconomic strains.

Earlier in March 2020, the securities regulator had taken a similar move to curb the free fall of shares following the global pandemic, when the DSEX fell below 3,000 points.

Sumit Podder, Managing director of the Bangladesh Finance Capital told The Business Post, “Overall economic conditions have changed globally after the Covid-19 pandemic. It affected Bangladesh as well. That time, the regulatory body felt that giving a floor price could protect the market from a down trend. From that point the regulator gave it because of safety.”

“So the floor price was given to protect the big interest. And that was introduced aiming to protect the interests of small investors. But the floor price is not beneficial for the long term from an overall perspective. It does not sustain itself long-term,” he added.

On condition of anonymity, a high official of a top stock broker told The Business Post, “In the context of a continuous price decline and bringing back the floor price for all shares every day, some shares are falling to their lower limits.”

In time of the reintroduction of the price floor mechanism for all stocks in the early March this year, BSEC Chairman Prof Shibli Rubayat-Ul-Islam told reporters that the commission had been forced to reintroduce the floor price for stocks just to protect retailers as the country’s stock markets were teeming with retailers.

The ongoing Russia-Ukraine war, which started in February last year, spilled over its adverse effects across the globe, causing currency volatility, high inflation, and price hikes of all goods and raw materials in the global market.

Wishing to remain anonymous, the chief executive officer of a leading brokerage house said, “The country’s stock market suffered a severe liquidity crisis in the immediate past months as investors could not participate in trading due to the price limit set on shares by the regulator to halt the free fall of the price indices.”

A top stock broker said that liquidity in the market continued to be squeezed due to the floor price restriction as investors were reluctant to put fresh bets on stocks.