Boosting foreign portfolio investment

DSE for relaxing terms of banks' TICM report

Mohammad Mufazzal | Published: July 08, 2018 10:41:16 | Updated: July 09, 2018 10:50:11


Dhaka Stock Exchange (DSE) has recommended the central bank to exempt the banks from showing the short term loans to their brokerage subsidiaries in their Total Investment in Capital Market (TICM) report.

The banks have to show the loans, that facilitates foreign portfolio investment, in the TICM report and submit it to the Bangladesh Bank (BB) every month.

The premier bourse put forward the recommendation in response to a recent central bank letter, seeking opinion in this regard.

Earlier, Eastern Bank Limited (EBL) requested the central bank to exempt the 'overnight' exposure to wholly-owned brokerage subsidiary from the reporting under TICM.

The EBL made the plea to facilitate foreign portfolio investments in the country's capital market.

In cases of conducting transactions through foreign portfolios, the brokers have to take loans from their parent companies usually for 24 hours.

For taking delivery of shares, the brokers have to pay the amount against the bought shares from own source to the custodians such as Standard Chartered Bank (SCB), HSBC, Citi N.A.

They get back the fund from custodians after delivery of the shares. Similarly, the brokers are required to take delivery of shares from custodians by paying own fund.

The brokers get back their fund after settlement of such shares and they take loans for around 24 hours from parent companies to conduct the transactions in foreign portfolios.

And such type of loans is included in calculation of TICM by the banks and financial institutions.

"The fund requirements are usually for only one business day to support trade settlements and this will have no effect on investment or volatility in the capital market," the EBL said in its letter to the central bank.

The EBL has sought the facility for its wholly-owned subsidiary, EBL Securities Limited.

It said the parent company's fund support will facilitate mutual business opportunities as well as facilitate the capital market and the economy as a whole.

In this regard, the central bank has sought opinion and recommendation from the premier bourse, DSE.

In its recommendation, the premier bourse said obstacles are being created due to including the short-term loans to facilitate foreign transactions in the bank's TICM.

"As a result, foreign portfolio transactions are reducing in the capital market," the DSE said.

It said foreign portfolio investments play an important role for the development of the capital market.

"The banks and financial institutions will be able to provide increased amount of funds to subsidiaries if such exposures are excluded from the calculation on TICM," the premier bourse said.

The officials of EBL and central bank could not be reached for their comments.

According to DSE, the amount of transactions in foreign portfolios would be only 5.0 per cent of the exchange's total transactions.

In the fiscal year (FY) 2017-18, the amount of transactions in foreign portfolios stood at Tk 117.29 billion, which was 7.37 per cent of annual turnover on the DSE.

On the other hand, the amount of transactions in foreign portfolios was above Tk 100.09 billion in the FY 2016-17.

As a result, in 2017-18, the foreign portfolio transactions rose 17.18 per cent or Tk 17.19 billion compared to that of FY 2016-17.

According to the DSE, the foreign portfolio investors purchased securities worth above Tk 59.01 billion and sold securities worth above Tk 58.28 billion in FY 2017-18.

As a result, the net position in foreign portfolios rose only by 1.25 per cent or above Tk 730 million in FY 2017-18.

The net position in foreign portfolios rose 58.60 per cent or above Tk 22.68 billion in the FY 2016-17 compared to previous FY.

mufazzal.fe@gmail.com

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