The Bangladesh Securities and Exchange Commission (BSEC) has extended the time limit for provisioning for stock brokerage and merchant banks’ client portfolios against unrealised losses due to the current market-free fall.
The stock market regulator has extended the time for provisioning until January 31, 2025, from June 30, 2024, as per its statements issued Thursday. Previously, the commission extended the time for provisioning until December 31, 2023, and then until June 30, 2024.
There is no need for provisioning against unrealised losses. But, after this period, all organisations have to follow International Financial Reporting Standards for provisions, as per the regulatory decision.
Stockbrokers and merchant banks can continue with only 20 per cent of the needed provisioning against the unrealised losses in their own capital market investments.
An investment portfolio loss remains unrealised until the investor sells the securities off at a price lower than the cost price, and the International Accounting Standard (IAS) asks for 100 per cent provision against such losses at the same accounting period.
However, the relaxation has been continuing against the IAS since 2016, and now has been set to stretch for a decade in a row, raising caution among observers.
According to accounting experts, it means that the regulations are allowing firms to show artificial profits or downplay their losses for years.
When local regulations allow it, auditors are bound to okay the accounting even if it goes against IAS or builds up risks for the firms, their clients, and also for the system as a whole. The IAS needs 100 per cent provision against unrealised losses in the same accounting period.
The key index of the Dhaka Stock Exchange (DSE), DSEX, recently fell as panic-driven sell pressure continued to dominate the market amid subdued market sentiment and rising tensions over the market outlook.
The benchmark index is extending its free fall as the market failed to recover from the enduring pessimism pervading the trading floor, owing to the dampened confidence of investors amidst an uncertain market outlook, market insiders said.
On Wednesday, DSEX lost 71.71 points, or 1.23 per cent, and closed at 5,762.68 at the end of trading. This is the first time the index dropped below the 5,800 mark after three years.
The market witnessed a free fall, failing to recover from the enduring pessimism pervading the trading floor, as a result of lasting concerns stemming from sudden policy changes, which have significantly impacted investor sentiment, market insiders said.
It witnessed a downward trend throughout the session as investors shied away from taking positions in equities and opted to stay on the sidelines to observe the market momentum amidst the prolonged subdued market sentiment, EBL Securities said in its daily market review.
Top officials of stock brokerages said the situation has been exacerbated by the shortened trading hours during Ramadan and the anticipation of fund withdrawals ahead of Eid. Market volatility persists as confidence is yet to be restored owing to concerns regarding outlook.
The BSEC on January 1, 2021, revised the margin loan limit announced recently based on the movement of the broad index of the Dhaka Stock Exchange (DSE).
As per the revised limit, the margin loan will now be distributed at a ratio of 1:0.75 if the DSE broad index DSEX stays below 4,000 points. The margin loan ratio will be 1:0.50 if the DSEX remains between 4,001 points and 7,000 points.
And the ratio will be 1:0.25 if the DSEX is 7001 points or above.
The BSEC had said the margin loan ratio will be 1:0.75 if the DSEX remains between 4,001 points and 5,000, while the ratio will be 1:0.50 if the DSEX is between 5,001 points and 6,000 points and 1:0.25 if the index goes beyond 6,000 points.
In 2022, the BSEC backtracked on implementing a 12 per cent interest rate ceiling on margin loans after failing to execute the cap in a year.
