Time extension again for provisioning against unrealised losses

Stock dealers, stockbrokers, and merchant banks get more time -- until December 31, 2025 -- for provisioning their portfolios against unrealised losses after the latest time extension by the securities regulator.

At a meeting on Wednesday, the Bangladesh Securities and Exchange Commission (BSEC) made the decision, having received requests by market operators, said BSEC spokesperson and executive director Mohammad Rezaul Karim.

Against the backdrop of the sluggish stock market, the move will "inspire long-term investments by institutional investors," he said.

The existing time limit was until the end of this year.

By the time the latest extension period ends, the market may improve following price appreciation of stocks. In that case, the provision requirement will decline, said Md Sayadur Rahman, president of the Bangladesh Merchant Bankers Association (BMBA).

Market operators are required to keep money aside against unrealised losses to minimise investment risks. They usually do it from profits.

Under the existing market scenario, provisioning requirement is very high but market operators have thin chances to make any profit, said Mr Rahman.

The stock market has been struggling since the start of the Russia-Ukraine war in February last year. Growing economic worries and dismal earnings disclosures of most listed companies exacerbated the situation.

The bearish sentiment in the stock market led to the key index dropping below 6,000-mark in July last year, which forced the securities regulator to reinstate the price restrictions.

Despite re-imposition of the floor price, the DSEX, the key index of the Dhaka Stock Exchange (DSE) shed 728 points or 10.20 per cent since February last year.

The squeezing liquidity scenario in the money market and floor price restriction hurt market participation and some of the investors favored channeling funds to alternative investment options.

Senior vice-president of DSE Brokers Association of Bangladesh (DBA) Md. Sajedul Islam said they would face immense pressure if the timeframe were not extended.

At a time when most stocks have remained stuck at floor prices, the time extension will "reduce our pressure," Mr. Islam said.

Insiders said the securities regulator had been urged to extend the timeframe in consideration of the ongoing market situation, where securities had long been enduring price erosions.

The regulator went easy on provisioning for the first time after the 2010 stock market debacle. Market operators saw the value of their assets plummet as the market crashed.

Then they were offered with two-year time for provisioning against unrealised losses. Later, the time was extended in 2014, 2015, and 2016.

The move was repeated in 2017 and 2018. Each time, the extension was done by one year. The regulator then continued to stretch the time until December 31 this year.

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