3 merchant banks come under probe

The stock market regulator has formed a three-member committee to investigate irregularities in the margin accounts of three merchant banks.

ICB Capital Management, Janata Capital and Investment, and IIDFC Capital are subjected to the probe.

The Bangladesh Securities and Exchange Commission (BSEC) has ordered the committee to find out the number of margin accounts the merchant banks have, the number of BO accounts with negative equity, actual amount of negative equity, provisions, deficits in provisions, and unauthorised transactions in margin accounts.

"This is not a regular investigation. Our initial investigation found some anomalies tied to consolidated customers' accounts and negative equity accounts. So, we decided to start an in-depth investigation," said BSEC spokesperson Md Abul Kalam.

The regulatory body also sought an explanation as to why negative equity has been ballooning and the identities of the people responsible for that.

The committee will also identify the reasons behind merchant banks' failure to maintain provisions as required against unrealized losses and their non-compliance with the securities rules.

Margin loan has become a chronic problem for Bangladesh's capital market.

Brokerage firms disbursed margin loans aggressively to ineligible clients. After the 2010 market crash, most margin account holders became defaulters.

As the investors turned bankrupt, brokerage houses were unable to pay back loans to banks.

According to the latest data, the secondary market bears the burden of margin loans worth Tk 181.3 billion, out of which Tk 105.2 billion (negative equity) has been wiped out. Brokers kept only Tk 27 billion in provision.

There are allegations that negative equity accounts were misused by some brokerage houses to manipulate the market price of shares.

A margin loan is money an investor borrows from a broker to purchase securities, keeping the securities in his account as collateral. Negative equity in this context means that the market value of the investor's securities in his portfolio has fallen below the amount borrowed.

ICB Capital Management and Janata Capital are subsidiaries of state-owned investment bank ICB and state-run Janata bank.

IIDFC Capital is a subsidiary of the Industrial and Infrastructure Development Finance Company (IIDFC) PLC, a financial institution in Bangladesh.

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