FE Report (June 29, 2011)
The Finance Bill, 2011 was passed in the House Tuesday by keeping a provision for commencement of Alternative Dispute Resolution (ADR) for resolving income tax-related disputes, reports BSS.
Finance Minister Abul Maal Abdul Muhith proposed for passage of the bill that included the implementation of government's financial proposals and amendments to several laws.
In the bill, several laws and provisions on tax proposals and duty with financial involvement were amended.
Besides, there is a provision for making effective those provisions in the bill from July 1 of the upcoming fiscal year.
Treasury bench members Md Fazley Rabbi Mian, Muhammad Imazuddin Pramanik and Dhirendra Devnath Shambhu and lone independent lawmaker Md Fazlul Azim proposed for amendments of several provisions of the bill.
Of them, 30 amendment proposals were accepted but the rest of the proposals were rejected in voice votes.
The finance minister placed the Tk 1.63 trillion (163,589 crore) national budget for 011-12 fiscal year in the House on June 9.
Wednesday, June 29
Investment of ‘undisclosed’ money in stocks allowed
FE Report (June 29, 2011)
The government has decided to allow investment of undisclosed money in the stock market. It has also revised downward the proposed tax at source on exports.
Finance Minister AMA Muhith made necessary changes in the Finance Bill-2011 that was adopted by the parliament Tuesday in compliance with requests from Prime Minister Sheikh Hasina to this effect.
Anyone will be now free to invest his or her undisclosed fund in stock market by paying 10 per cent tax. But investment of declared income in the initial public offerings (IPOs) will enjoy 10 per cent tax rebate.
The government reduced the proposed tax at source to 0.70 per cent and 0.60 per cent for all exports and readymade garment exports respectively. The government had originally proposed to raise the tax to 1.50 per cent for all exports.
Tax on realtors for commercial space has been reduced to Tk 8,000, Tk 6,000 and Tk 2,000 from Tk 20,000, Tk 15,000 and Tk 5,000 respectively, depending on locations.
The government has also waived the proposed 5.0 per cent tax on poultry, fisheries and other sector. The sector will enjoy tax holiday facilities until 2013.
Muhith said, "Given the volatility of the stock market, it needed more incentives from the government."
Import of poultry feed, liquefied petroleum gas (LPG) will also enjoy special tax benefit in 2011-12.
The government also made some important changes in the proposed budget that was placed before parliament on June 9 last.
In 2007-08, the government collected Tk 8.03 billion tax against Tk 88.95 billion undisclosed income declared by 16,664 taxpayers.
In 2008-09, some 14,254 taxpayer declared Tk 7.87 billion undeclared money and paid Tk 1.08 billion tax.
Some 1923 taxpayer availed themselves of the facility in 2009-10 paying Tk 1.21 billion tax against legalizing Tk 9.22 billion undeclared income.
Economists and experts have found the existence of a large shadow economy in the country in recent times. However, a section of economists, business leaders and bourses have been suggesting the government for the last few days to allow investment of undisclosed income in share market to make the market vibrant again.
Bangladesh Economists Association and apex chamber body Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) have also urged the Prime Minister to offer the opportunity.
Last year, the government offered the opportunity to formalise undeclared income thorough investment in Bangladesh infrastructure Investment bond until 2012.
However, the provision of declaring undisclosed income in Treasury Bond with 10 per cent tax was proposed on June 9 last will remain unchanged.
The government has decided to allow investment of undisclosed money in the stock market. It has also revised downward the proposed tax at source on exports.
Finance Minister AMA Muhith made necessary changes in the Finance Bill-2011 that was adopted by the parliament Tuesday in compliance with requests from Prime Minister Sheikh Hasina to this effect.
Anyone will be now free to invest his or her undisclosed fund in stock market by paying 10 per cent tax. But investment of declared income in the initial public offerings (IPOs) will enjoy 10 per cent tax rebate.
The government reduced the proposed tax at source to 0.70 per cent and 0.60 per cent for all exports and readymade garment exports respectively. The government had originally proposed to raise the tax to 1.50 per cent for all exports.
Tax on realtors for commercial space has been reduced to Tk 8,000, Tk 6,000 and Tk 2,000 from Tk 20,000, Tk 15,000 and Tk 5,000 respectively, depending on locations.
The government has also waived the proposed 5.0 per cent tax on poultry, fisheries and other sector. The sector will enjoy tax holiday facilities until 2013.
Muhith said, "Given the volatility of the stock market, it needed more incentives from the government."
Import of poultry feed, liquefied petroleum gas (LPG) will also enjoy special tax benefit in 2011-12.
The government also made some important changes in the proposed budget that was placed before parliament on June 9 last.
In 2007-08, the government collected Tk 8.03 billion tax against Tk 88.95 billion undisclosed income declared by 16,664 taxpayers.
In 2008-09, some 14,254 taxpayer declared Tk 7.87 billion undeclared money and paid Tk 1.08 billion tax.
Some 1923 taxpayer availed themselves of the facility in 2009-10 paying Tk 1.21 billion tax against legalizing Tk 9.22 billion undeclared income.
Economists and experts have found the existence of a large shadow economy in the country in recent times. However, a section of economists, business leaders and bourses have been suggesting the government for the last few days to allow investment of undisclosed income in share market to make the market vibrant again.
Bangladesh Economists Association and apex chamber body Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) have also urged the Prime Minister to offer the opportunity.
Last year, the government offered the opportunity to formalise undeclared income thorough investment in Bangladesh infrastructure Investment bond until 2012.
However, the provision of declaring undisclosed income in Treasury Bond with 10 per cent tax was proposed on June 9 last will remain unchanged.
Tuesday, June 21
BB to include other banks' deposits for calculating CDR
FE Report (June 21, 2011)
Commercial banks will able to lend more as the central bank has decided to include other banks' deposits for the calculation of credit-deposit ratio (CDR), officials said Monday.
In accordance with the latest decisions, the banks will be allowed to calculate the CDR considering other banks' deposits as a source of fund instead of excluding those deposits from the denominator.
Besides, the banks will have to include credit to other banks in their total credit position. But overnight borrowing and lending will be excluded from the total deposit and credit.
Bangladesh Bank (BB) took the decisions at a meeting with the leaders of the Bangladesh Association of Banks (BAB) and Association of Bankers, Bangladesh (ABB) held at its conference room Monday.
Bangladesh Bank Governor Atiur Rahman presided over the meeting, while a nine-member delegation of the associations representing the owners of private commercial banks (PCBs) and their chief executive officers (CEOs) or managing directors led by BAB chairman Nazrul Islam Mazumder took part in it.
"We'll issue a directive in this connection within a day or two," a senior official of the BB told the FE, adding that the central bank has taken the decision aiming to mobilise funds through encouraging intermediation in the banking sector.
"The banks will able to lend more funds in different sectors after issuing the new directive relating to calculation of the CDR," another BB official said.
The banks have to include credit to other banks in their total credit position, he said, adding that overnight borrowing and lending will be excluded from the total deposit and credit
The apex forum of the country's PCBs welcomed the BB's latest move, saying that it would help ease liquidity crunch in the banking system.
"The banks will able to maintain their CDR limit, set by the central bank earlier, easily following the BB's latest decision," Mr. Mazumder told the FE.
On February 20 last, the BB has set June 30 as deadline for bringing down the CDR of the commercial banks to a reasonable level.
Under the directive, 19 conventional commercial banks will have to bring down their CDR to 85 per cent while five Sharia-based Islamic banks to 90 per cent by June 30 this year.
"We've briefed the BB governor of our Saturday meeting's decisions," chairman of ABB K Mahmood Sattar told reporters, adding that the BB has welcomed Saturday meeting's decisions.
On Saturday, the BAB and the ABB decided to follow a uniform policy on deposit rate, indicating a maximum rate of interest at 12 per cent on deposits.
Besides the decision taken on the deposit rate, the meeting resolved to keep the limit on lending rate on import funding for food items at 12 per cent.
The decision came into effect from Monday, the BAB chief added
Commercial banks will able to lend more as the central bank has decided to include other banks' deposits for the calculation of credit-deposit ratio (CDR), officials said Monday.
In accordance with the latest decisions, the banks will be allowed to calculate the CDR considering other banks' deposits as a source of fund instead of excluding those deposits from the denominator.
Besides, the banks will have to include credit to other banks in their total credit position. But overnight borrowing and lending will be excluded from the total deposit and credit.
Bangladesh Bank (BB) took the decisions at a meeting with the leaders of the Bangladesh Association of Banks (BAB) and Association of Bankers, Bangladesh (ABB) held at its conference room Monday.
Bangladesh Bank Governor Atiur Rahman presided over the meeting, while a nine-member delegation of the associations representing the owners of private commercial banks (PCBs) and their chief executive officers (CEOs) or managing directors led by BAB chairman Nazrul Islam Mazumder took part in it.
"We'll issue a directive in this connection within a day or two," a senior official of the BB told the FE, adding that the central bank has taken the decision aiming to mobilise funds through encouraging intermediation in the banking sector.
"The banks will able to lend more funds in different sectors after issuing the new directive relating to calculation of the CDR," another BB official said.
The banks have to include credit to other banks in their total credit position, he said, adding that overnight borrowing and lending will be excluded from the total deposit and credit
The apex forum of the country's PCBs welcomed the BB's latest move, saying that it would help ease liquidity crunch in the banking system.
"The banks will able to maintain their CDR limit, set by the central bank earlier, easily following the BB's latest decision," Mr. Mazumder told the FE.
On February 20 last, the BB has set June 30 as deadline for bringing down the CDR of the commercial banks to a reasonable level.
Under the directive, 19 conventional commercial banks will have to bring down their CDR to 85 per cent while five Sharia-based Islamic banks to 90 per cent by June 30 this year.
"We've briefed the BB governor of our Saturday meeting's decisions," chairman of ABB K Mahmood Sattar told reporters, adding that the BB has welcomed Saturday meeting's decisions.
On Saturday, the BAB and the ABB decided to follow a uniform policy on deposit rate, indicating a maximum rate of interest at 12 per cent on deposits.
Besides the decision taken on the deposit rate, the meeting resolved to keep the limit on lending rate on import funding for food items at 12 per cent.
The decision came into effect from Monday, the BAB chief added
Monday, June 20
ADB, IFC offer help for Dhaka bourse demutualisation
FE Report (June 20, 2011)
The Asian Development Bank (ADB) and International Finance Corporation (IFC) have agreed to give technical support to demutualisation of the Dhaka Stock Exchange.
The committee for demutualisation of the premier bourse earlier requested the ADB and IFC to offer technical support to the process of demutualisation and the organisations responded positively, said a member of the committee.
The demutualisation of stock ex-changes was also a major recommendation of the probe committee on January's stock debacle.
The Dhaka bourse authorities and a committee on demutualisation held a meeting on Thursday to review the works on much-talked demutualisation.
An ADB team will visit the premier bourse on Tuesday, said the committee member.
“We have decided to visit some demutualised stockmarkets such as Hong Kong, Singapore, Philippines and Australian bourses in September,” he said.
Demutualisation of a stock exchange transforms it from an entity owned by mostly brokerage-owning members into a for-profit company owned by shareholders. It ensures a sound corporate governance, alternative business models and operational efficiency.
A demutualised exchange can also freely trade on the market like any other public company.
Recently, Finance Minister AMA
Muhith said there is no alternative to demutualisation and it must be completed within the tenure of this government.
Demutalisation is a must to increase transparency in the bourses' functions, the minister said.
The committee studied some international models on demutualisation to form a law to complete the process of demutua-lisation. They also appointed legal experts to finalise the law on demutualisation.
“We will also take suggestions from the ADB team,” said the committee member.
SEC finishes bulk of probe into Dec-Jan share debacle
FE Reporting (June 20, 2011)
The securities regulator has completed bulk of its investigation into the recent stock market crash, but it has no plan to disclose the outcome before the end of the probe deadline, its chief said Sunday.
M. Khairul Hossain, chairman of the Securities and Exchange Commission (SEC), said the regulator was "seriously" conducting probe into the misdeeds, blamed for the December-January stock debacle that gutted thousands of small investors.
But he said the result of the probe would not come out before the end of August --- a deadline imposed by the Ministry of Finance --- as new revelations of the alleged foul-plays may affect the fragile recovery at the stock market.
The MoF ordered the regulator to carry out a separate investigation into the debacle late last month, after a government-appointed probe committee pin-pointed 14 types of irregularities behind the crash.
"We have completed the greater part of our investigation," Mr. Hossain told the FE. "But we won't disclose the findings because we don't want to do anything that could affect the market."
According to the finance ministry directives, the SEC must complete probe into eight types of misdeeds by end of June and the rest six before the expiry of the deadline in late August.
"We are continuing our efforts to comply with the directives of the Finance Ministry," he said, adding the SEC was conducting the probe "seriously".
The 14 alleged irregularities, which were referred to the SEC for further probes include serial trading, share manipulation by firms and individuals and state of affairs concerning 100 overvalued companies.
The eight types of wrongdoings on which SEC would finish investigation by end of June include investigation on 'shadow accounts' --- better known as 'omnibus' accounts - which was used by rogue traders to tank the market.
However, the SEC has got bigger time-span -- three months -- to probe 'large-scale" irregularities such as suspected manipulations concerning the share prices of 17 listed companies.
Top firms under the SEC radar are: BD Thai Aluminum and JEM Global, Khulna Power, GMG Airlines, Bangladesh Welding Electrodes, CMC Kamal Textile, Meghna Cement, Malek Spinning, Mobil Jamuna Lubricants, Barakatullah Electro Dynamics, Salvo Chemical, United Airways, Beacon Pharmaceuticals, MI Cement and Fu-Wang Ceramics.
The securities regulator has completed bulk of its investigation into the recent stock market crash, but it has no plan to disclose the outcome before the end of the probe deadline, its chief said Sunday.
M. Khairul Hossain, chairman of the Securities and Exchange Commission (SEC), said the regulator was "seriously" conducting probe into the misdeeds, blamed for the December-January stock debacle that gutted thousands of small investors.
But he said the result of the probe would not come out before the end of August --- a deadline imposed by the Ministry of Finance --- as new revelations of the alleged foul-plays may affect the fragile recovery at the stock market.
The MoF ordered the regulator to carry out a separate investigation into the debacle late last month, after a government-appointed probe committee pin-pointed 14 types of irregularities behind the crash.
"We have completed the greater part of our investigation," Mr. Hossain told the FE. "But we won't disclose the findings because we don't want to do anything that could affect the market."
According to the finance ministry directives, the SEC must complete probe into eight types of misdeeds by end of June and the rest six before the expiry of the deadline in late August.
"We are continuing our efforts to comply with the directives of the Finance Ministry," he said, adding the SEC was conducting the probe "seriously".
The 14 alleged irregularities, which were referred to the SEC for further probes include serial trading, share manipulation by firms and individuals and state of affairs concerning 100 overvalued companies.
The eight types of wrongdoings on which SEC would finish investigation by end of June include investigation on 'shadow accounts' --- better known as 'omnibus' accounts - which was used by rogue traders to tank the market.
However, the SEC has got bigger time-span -- three months -- to probe 'large-scale" irregularities such as suspected manipulations concerning the share prices of 17 listed companies.
Top firms under the SEC radar are: BD Thai Aluminum and JEM Global, Khulna Power, GMG Airlines, Bangladesh Welding Electrodes, CMC Kamal Textile, Meghna Cement, Malek Spinning, Mobil Jamuna Lubricants, Barakatullah Electro Dynamics, Salvo Chemical, United Airways, Beacon Pharmaceuticals, MI Cement and Fu-Wang Ceramics.
NBR to withdraw tax rebate on investment in capital market
FE Report (June 20, 2011)
The National Board of Revenue (NBR) is set to withdraw tax rebate facilities on investment in the capital market by individual taxpayers from the upcoming fiscal.
Currently, individual taxpayers can enjoy 10 per cent tax rebate facilities if they show investment in the share market in the tax return file.
In a reverse order, the revenue board is set to offer 10 per cent tax rebate on Deposit Premium Scheme (DPS) up to Tk 60,000 annual investment in all scheduled and commercial banks.
Depositors of the state-controlled banks - Sonali, Janata, Agrani, Rupali - are now enjoying the tax rebate on DPS.
In the Finance Bill-2011, the government also brought income of mutual fund issuing companies under tax net from the upcoming fiscal.
Issuer of mutual fund will have to pay income tax at the regular rate on their income on issuance of mutual fund.
The revenue board has also withdrawn tax-free ceiling up to Tk 20,000 for investment on debenture. From 2011-12 fiscal, people will have to pay tax on the entire interest amount of debenture.
Currently, the revenue board offers tax rebate on the amount that the taxpayer invests in the share market, both primary and secondary trading.
A senior revenue board official said the government has withdrawn the provision of tax benefit for investment in the share market in the Finance Bill-2011.
Officials said taxpayers will not get any tax rebate from 2011-12 fiscal by showing investment in the capital market, but individual taxpayers can enjoy tax-free facilities on capital gain.
Taxpayers who are now claiming tax rebate on investment in the capital market are subject to paying tax at the normal rate on capital gain, said a senior tax official.
The revenue board has withdrawn the provision to avoid any complexities on claiming tax benefit on capital gain.
The NBR official said the government did not impose any new tax on the capital market, but withdrew some existing tax benefits.
In a bid to come out of the widespread tax-exemption culture the revenue board has incorporated those measures in the Finance Bill-2011.
Tax officials said the measures will bring a significant amount of revenue in the upcoming fiscal from the capital market.
Former Finance Adviser AB Mirza Azizul Islam said the government is encouraging investment in banks with the measure rather than facilitating investment in the capital market.
"The capital market is now in a difficult situation, so the government should handle it carefully," he said.
Investment will be diverted to the banks in the reverse order with the measures, he said.
He hailed the government decision of not keeping mandatory rule of TIN (taxpayer identification number) on opening of Beneficiary Owner's (BO) account.
The National Board of Revenue (NBR) is set to withdraw tax rebate facilities on investment in the capital market by individual taxpayers from the upcoming fiscal.
Currently, individual taxpayers can enjoy 10 per cent tax rebate facilities if they show investment in the share market in the tax return file.
In a reverse order, the revenue board is set to offer 10 per cent tax rebate on Deposit Premium Scheme (DPS) up to Tk 60,000 annual investment in all scheduled and commercial banks.
Depositors of the state-controlled banks - Sonali, Janata, Agrani, Rupali - are now enjoying the tax rebate on DPS.
In the Finance Bill-2011, the government also brought income of mutual fund issuing companies under tax net from the upcoming fiscal.
Issuer of mutual fund will have to pay income tax at the regular rate on their income on issuance of mutual fund.
The revenue board has also withdrawn tax-free ceiling up to Tk 20,000 for investment on debenture. From 2011-12 fiscal, people will have to pay tax on the entire interest amount of debenture.
Currently, the revenue board offers tax rebate on the amount that the taxpayer invests in the share market, both primary and secondary trading.
A senior revenue board official said the government has withdrawn the provision of tax benefit for investment in the share market in the Finance Bill-2011.
Officials said taxpayers will not get any tax rebate from 2011-12 fiscal by showing investment in the capital market, but individual taxpayers can enjoy tax-free facilities on capital gain.
Taxpayers who are now claiming tax rebate on investment in the capital market are subject to paying tax at the normal rate on capital gain, said a senior tax official.
The revenue board has withdrawn the provision to avoid any complexities on claiming tax benefit on capital gain.
The NBR official said the government did not impose any new tax on the capital market, but withdrew some existing tax benefits.
In a bid to come out of the widespread tax-exemption culture the revenue board has incorporated those measures in the Finance Bill-2011.
Tax officials said the measures will bring a significant amount of revenue in the upcoming fiscal from the capital market.
Former Finance Adviser AB Mirza Azizul Islam said the government is encouraging investment in banks with the measure rather than facilitating investment in the capital market.
"The capital market is now in a difficult situation, so the government should handle it carefully," he said.
Investment will be diverted to the banks in the reverse order with the measures, he said.
He hailed the government decision of not keeping mandatory rule of TIN (taxpayer identification number) on opening of Beneficiary Owner's (BO) account.
Thursday, June 16
Facilitating research-based investment
FE Report (June 16, 2011)
Prevention is better than cure - we all know it. At present, this proverb is well-matched for the recent share market crash in Bangladesh. The government is now trying hard for the recovery of the confidence of the small- and medium-sised investors whose hard-earned money has already been stuck in the market. As part of the initiatives - the government has already restructured the Securities and Exchange Commission (SEC), the stock market regulator, and created Bangladesh Fund of Tk 5.0 billion in the form of an open-ended mutual fund to increase the liquidity in the market.
Apart from this, steps for demutualisation of the stock markets have also been taken focusing on bringing transparency in management and strengthening the operation of the markets through ensuring agency services. Such recommendations were made by the probe committee on the scam in the stock market in its report. One recommendation is, however, still ignored - the advisory services, the research services for the investors under which the SEC accredited or authorised analysts who can recommend a sale, hold or buy rating, after performing a rigorous analysis.
Under the provisions of the current securities-related ordinance, act, rules and regulations, no one can do this. As a result, small investors depend highly on the rumours and speculations during the bubble formation, and tricky inventors successfully come out of the market after price manipulation.
Stock markets in the world had already experienced the consequences of market crash and are now trying to prevent the bubble formation, because once you have a bubble - there must be a burst. We see the same in our capital market - the first in 1988, second in 1996 and the third in 2010. It is very disappointing to see that our regulators are eager to take the credit for the boom, but blame each other when the market crashes.
The recent crash of Bangladesh stock market is a big blow to small investors, most of them are young and unemployed. They rely heavily on stock market in an effort to augment their incomes to cope with the rising inflation that the country is now facing. Although artificial rise of stock prices is never a good sign for the economy, but a sudden fall of market is equally damaging.
The authorities should have thought of the consequences of their decisions, prior to applying the same. The way it was done and implemented had serious repercussions on stock market and still the business community and analysts are continuously blaming the regulators. They should have done it slowly and gradually. It is still unclear how much time and effort is required for the Bangladesh stock market to recover from this shock.
In western countries, stock market regulators always try to prevent bubble formation through different kinds of measures such as strengthening coordination between money market and capital market. This is because liquidity directly impacts on the operation of stock market, as the financial institutions including banks, non-bank financial institutions (NBFIs) and insurance companies are the major participants in the markets. The regulators also take policy prescriptions, based on the advice of their in-house research department and, therefore, preventive measures are backed by a rationale.
In addition, independent capital market research houses, under the accreditation of the SEC, can recommend investors a rating to buy, sell or hold the individual securities for their portfolio. Surprisingly, this is not allowed in Bangladesh. But, there are 1,100 Cost and Management Accountants (CMAs), 1,200 Chartered Accountants (CAs), around 40 Chartered Financial Analysts (CFAs) and a large number of finance professionals in the universities in the country now. Such professionals are capable of providing advisory services to the investors through proper analysis of the state of affairs, and valuation of assets, relating to the companies.
The SEC should allow them to provide advisory services to the investors under a legal framework so that they cannot involve in fraudulent activities that may hurt the interest of the investors. In addition, the regulator can accreditate or authorise some of the research houses to work as capital market advisers and brokerage houses can outsource researches for their clients. Research products are naturally of high price for individual investors which may be difficult to buy. In this situation, the houses can buy the research products and they will recoup the money by charging the clients a nominal amount of say, Tk 10 based on their client base. These products will provide investors with good suggestions, induced by technical analysis and news-flow analysis.
Investing in the stock market requires a close understanding of the financial market. A profitable trade requires a good source of financial information, analysis, research and trading advice. Most of our retail investors have lacking in that. That is why our market remains prone to schemes and scams. Ordinary investors rely on rumours, as they have no other way to process the public information. It is also very difficult, even impossible, for the retail investors to possess that kind of knowledge and expertise. So, it is better for all the participants that the research houses are allowed to share their thorough and disciplined analysis with all. The research houses will help clients with informed equity investment decisions and build a healthy portfolio, giving the best to one's investment and trading needs. In addition, they will provide successful investment ideas which help create wealth and offer investment advice with a price target and in a timeframe over which gains can be made and also offer views on the economy, policy changes and government initiatives. They can provide reports on unique market opportunities and views on various sectors and their constituents.
At present, Mindspring Research, an independent equity research house, founded in 2009, with the aim of producing high quality research products and services, as private circulation, for some of the brokerage houses and asset management companies. But it cannot recommend, as per the existing law, to the investors on matters relating to 'buy, hold or sell' stocks. In this context, the SEC should look into the recommendations of the probe committee about the advisory services. This can provide one of the preventive measures for protecting stock market from the unwanted crash. We are already far behind other countries. In 1996, India had more than 300 financial analysts, whereas, at that time Bangladesh had none.
Today in western countries, thousands of research firms are producing equity and valuation notes, focusing on comparisons of the derived calculated value with the prevailing market price, which indicates the probable investment action - Hold, Buy, or Sale. In addition, such firms project the fair value of an individual stock through applying an appropriate valuation model, identify the value drivers of a company and evaluate their changes, analyse its earning power, considering various aspects of profitability including competitiveness, management, market segment, and industry cycle, and highlight major risks involved in investment in a company. They also make sectoral analysis which highlights the performance of the industry and future growth, shows the inter-competitiveness of the companies in the industry, determines stages of growth of the industry, identifies high performing companies of the industry, future challenges and points out secondary market performance of the industry.
In this backdrop, all concerned would look forward to the actions by the reconstituted SEC on the research firms in Bangladesh. If the research services are made relevant to the investors and appropriate provisions are made through rules, regulations and legal framework for use of such services, it may prevent the unusual market crash in future.
Prevention is better than cure - we all know it. At present, this proverb is well-matched for the recent share market crash in Bangladesh. The government is now trying hard for the recovery of the confidence of the small- and medium-sised investors whose hard-earned money has already been stuck in the market. As part of the initiatives - the government has already restructured the Securities and Exchange Commission (SEC), the stock market regulator, and created Bangladesh Fund of Tk 5.0 billion in the form of an open-ended mutual fund to increase the liquidity in the market.
Apart from this, steps for demutualisation of the stock markets have also been taken focusing on bringing transparency in management and strengthening the operation of the markets through ensuring agency services. Such recommendations were made by the probe committee on the scam in the stock market in its report. One recommendation is, however, still ignored - the advisory services, the research services for the investors under which the SEC accredited or authorised analysts who can recommend a sale, hold or buy rating, after performing a rigorous analysis.
Under the provisions of the current securities-related ordinance, act, rules and regulations, no one can do this. As a result, small investors depend highly on the rumours and speculations during the bubble formation, and tricky inventors successfully come out of the market after price manipulation.
Stock markets in the world had already experienced the consequences of market crash and are now trying to prevent the bubble formation, because once you have a bubble - there must be a burst. We see the same in our capital market - the first in 1988, second in 1996 and the third in 2010. It is very disappointing to see that our regulators are eager to take the credit for the boom, but blame each other when the market crashes.
The recent crash of Bangladesh stock market is a big blow to small investors, most of them are young and unemployed. They rely heavily on stock market in an effort to augment their incomes to cope with the rising inflation that the country is now facing. Although artificial rise of stock prices is never a good sign for the economy, but a sudden fall of market is equally damaging.
The authorities should have thought of the consequences of their decisions, prior to applying the same. The way it was done and implemented had serious repercussions on stock market and still the business community and analysts are continuously blaming the regulators. They should have done it slowly and gradually. It is still unclear how much time and effort is required for the Bangladesh stock market to recover from this shock.
In western countries, stock market regulators always try to prevent bubble formation through different kinds of measures such as strengthening coordination between money market and capital market. This is because liquidity directly impacts on the operation of stock market, as the financial institutions including banks, non-bank financial institutions (NBFIs) and insurance companies are the major participants in the markets. The regulators also take policy prescriptions, based on the advice of their in-house research department and, therefore, preventive measures are backed by a rationale.
In addition, independent capital market research houses, under the accreditation of the SEC, can recommend investors a rating to buy, sell or hold the individual securities for their portfolio. Surprisingly, this is not allowed in Bangladesh. But, there are 1,100 Cost and Management Accountants (CMAs), 1,200 Chartered Accountants (CAs), around 40 Chartered Financial Analysts (CFAs) and a large number of finance professionals in the universities in the country now. Such professionals are capable of providing advisory services to the investors through proper analysis of the state of affairs, and valuation of assets, relating to the companies.
The SEC should allow them to provide advisory services to the investors under a legal framework so that they cannot involve in fraudulent activities that may hurt the interest of the investors. In addition, the regulator can accreditate or authorise some of the research houses to work as capital market advisers and brokerage houses can outsource researches for their clients. Research products are naturally of high price for individual investors which may be difficult to buy. In this situation, the houses can buy the research products and they will recoup the money by charging the clients a nominal amount of say, Tk 10 based on their client base. These products will provide investors with good suggestions, induced by technical analysis and news-flow analysis.
Investing in the stock market requires a close understanding of the financial market. A profitable trade requires a good source of financial information, analysis, research and trading advice. Most of our retail investors have lacking in that. That is why our market remains prone to schemes and scams. Ordinary investors rely on rumours, as they have no other way to process the public information. It is also very difficult, even impossible, for the retail investors to possess that kind of knowledge and expertise. So, it is better for all the participants that the research houses are allowed to share their thorough and disciplined analysis with all. The research houses will help clients with informed equity investment decisions and build a healthy portfolio, giving the best to one's investment and trading needs. In addition, they will provide successful investment ideas which help create wealth and offer investment advice with a price target and in a timeframe over which gains can be made and also offer views on the economy, policy changes and government initiatives. They can provide reports on unique market opportunities and views on various sectors and their constituents.
At present, Mindspring Research, an independent equity research house, founded in 2009, with the aim of producing high quality research products and services, as private circulation, for some of the brokerage houses and asset management companies. But it cannot recommend, as per the existing law, to the investors on matters relating to 'buy, hold or sell' stocks. In this context, the SEC should look into the recommendations of the probe committee about the advisory services. This can provide one of the preventive measures for protecting stock market from the unwanted crash. We are already far behind other countries. In 1996, India had more than 300 financial analysts, whereas, at that time Bangladesh had none.
Today in western countries, thousands of research firms are producing equity and valuation notes, focusing on comparisons of the derived calculated value with the prevailing market price, which indicates the probable investment action - Hold, Buy, or Sale. In addition, such firms project the fair value of an individual stock through applying an appropriate valuation model, identify the value drivers of a company and evaluate their changes, analyse its earning power, considering various aspects of profitability including competitiveness, management, market segment, and industry cycle, and highlight major risks involved in investment in a company. They also make sectoral analysis which highlights the performance of the industry and future growth, shows the inter-competitiveness of the companies in the industry, determines stages of growth of the industry, identifies high performing companies of the industry, future challenges and points out secondary market performance of the industry.
In this backdrop, all concerned would look forward to the actions by the reconstituted SEC on the research firms in Bangladesh. If the research services are made relevant to the investors and appropriate provisions are made through rules, regulations and legal framework for use of such services, it may prevent the unusual market crash in future.
Merchant banks now need to have prior permission from SEC ==> Appointing and dismissing MDs
FE Report (June 16, 2011)
Merchant banks will have to take prior permission from the securities regulator for appointing and dismissing their managing directors as per a fresh amendment brought to Securities and Exchange Commission (SEC) Rules 1996, officials have said.
The amendment, approved by the SEC on Wednesday, has also defined the qualifications of managing directors (MDs) of merchant banks and areas of their jurisdiction to carry out responsibilities.
The move comes after some recent incidents of appointing a few controversial persons, whose roles as managing directors were not supportive to the stock market.
The decision came at a commission meeting, chaired by SEC chairman Professor Dr. M Khairul Hossain, held at the SEC office.
The SEC also approved the prospectus of LR Global Bangladesh Mutual Fund 1 and the restructuring proposal of AB Bank First Mutual Fund to reduce its size.
SEC spokesman Md Saifur Rahman said the regulator has approved the proposed amendment to Securities and Exchange Commission (Merchant Bankers and Portfolio Managers) Rules 1996, by bringing some changes to the existing rules.
"From now on, the merchant banks will have to take permission from the SEC to appoint or dismiss their managing directors," Mr. Rahman said.
According to sources, during the recent stock market debacle the managing directors of two merchant banks did not play positive roles in the stock market.
The regulator then asked the merchants banks to dismiss their managing directors. But the merchant banks did not comply with the regulator's instruction.
The SEC, in its next step, sought public opinion to amend the Securities and Exchange Commission (Merchant Bankers and Portfolio Managers) Rules 1996 in an effort to ensure positive roles of merchant banks.
After examining public opinion, the SEC finalised the draft of the amendment to the rules of merchant bankers and portfolio managers and finally approved it at Wednesday's commission meeting.
At the meeting, the SEC approved the prospectus of LR Global Bangladesh Mutual Fund 1, which will go public with a size of Tk 3.0 billion.
Of the Tk 3 billion, Taka one billion will be collected through pre-IPO (initial public offering) placement and Tk 1.5 billion through IPO. The sponsors will contribute the remaining amount of the fund.
LR Global is working as an asset manager of this mutual fund.
The SEC also approved the restructuring proposal of AB Bank First Mutual Fund to go public with a size of Tk 1.5 billion instead of its previous size of Tk 3.5 billion, approved by the regulator.
Earlier, the SEC approved the trust deed and investment agreement deal of this mutual fund.
Merchant banks will have to take prior permission from the securities regulator for appointing and dismissing their managing directors as per a fresh amendment brought to Securities and Exchange Commission (SEC) Rules 1996, officials have said.
The amendment, approved by the SEC on Wednesday, has also defined the qualifications of managing directors (MDs) of merchant banks and areas of their jurisdiction to carry out responsibilities.
The move comes after some recent incidents of appointing a few controversial persons, whose roles as managing directors were not supportive to the stock market.
The decision came at a commission meeting, chaired by SEC chairman Professor Dr. M Khairul Hossain, held at the SEC office.
The SEC also approved the prospectus of LR Global Bangladesh Mutual Fund 1 and the restructuring proposal of AB Bank First Mutual Fund to reduce its size.
SEC spokesman Md Saifur Rahman said the regulator has approved the proposed amendment to Securities and Exchange Commission (Merchant Bankers and Portfolio Managers) Rules 1996, by bringing some changes to the existing rules.
"From now on, the merchant banks will have to take permission from the SEC to appoint or dismiss their managing directors," Mr. Rahman said.
According to sources, during the recent stock market debacle the managing directors of two merchant banks did not play positive roles in the stock market.
The regulator then asked the merchants banks to dismiss their managing directors. But the merchant banks did not comply with the regulator's instruction.
The SEC, in its next step, sought public opinion to amend the Securities and Exchange Commission (Merchant Bankers and Portfolio Managers) Rules 1996 in an effort to ensure positive roles of merchant banks.
After examining public opinion, the SEC finalised the draft of the amendment to the rules of merchant bankers and portfolio managers and finally approved it at Wednesday's commission meeting.
At the meeting, the SEC approved the prospectus of LR Global Bangladesh Mutual Fund 1, which will go public with a size of Tk 3.0 billion.
Of the Tk 3 billion, Taka one billion will be collected through pre-IPO (initial public offering) placement and Tk 1.5 billion through IPO. The sponsors will contribute the remaining amount of the fund.
LR Global is working as an asset manager of this mutual fund.
The SEC also approved the restructuring proposal of AB Bank First Mutual Fund to go public with a size of Tk 1.5 billion instead of its previous size of Tk 3.5 billion, approved by the regulator.
Earlier, the SEC approved the trust deed and investment agreement deal of this mutual fund.
Draft amendments to Banking Companies Act almost ready
FE Report (June 15, 2011)
The central bank has initiated a move to reduce the influence of individual families on banks' boards, a senior Bangladesh Bank (BB) official said.
"We are considering necessary amendment to the Banking Companies Act, 1991 so that more than two members of a family cannot be on the board of directors of a banking company," the BB executive director Jahangir Alam told the FE Wednesday.
Presently, the Banking Companies Act does not allow a family or a company to hold more than 10 per cent share of a bank at a time. However, the amendment is not considering to bring any change in this particular provision, he said.
The draft of the proposed amendments, which is likely to be submitted to the Ministry of Finance (MoF) within this month, is also considering tagging a clause regarding the exposure of banks in the capital market with their equity instead of depositors' money.
"Banks won't be allowed to invest depositors' money in the stock market. Only a portion of their paid-up capital can be invested in the capital market, but the amount is yet to be fixed," said Mr Alam, who is leading the team drafting the amendment.
"We are also working on changing the definition of capital," he said without elaborating.
According to the present Banking Companies Act, if any company of a group becomes defaulter the group is considered defaulter. The proposed amendment is likely to consider the specific company defaulter, not other members of the group, sources said.
The draft of the proposed amendment, which is almost at the final stage, is going to propose the maximum number of directors at 20 instead of the present 30 to 40. The existence of a large number of directors proves to be a barrier to proper governance of the bank, as most of them try to influence loan sanction and other processes, an official said.
The amendment is likely to propose empowerment of the central bank to penalise individuals and organisations directly instead of going to courts for the same. At present offenders take legal protection to save themselves from punishment, and the regulator becomes helpless.
Sources said the draft amendment may propose formation of a central financial regulatory authority, comprising all the financial regulatory bodies, including the BB, the insurance authority, the micro-credit authority and the Securities and Exchange Commission to help monitor the banks' exposures to other areas.
The draft is likely to bring changes to Section-35 of the Act, allowing more than one person as nominee of an account holder.
The BB has been working on the amendment to the Banking Companies Act during the last one year, following the promulgation of an ordinance by the last caretaker government.
The central bank has initiated a move to reduce the influence of individual families on banks' boards, a senior Bangladesh Bank (BB) official said.
"We are considering necessary amendment to the Banking Companies Act, 1991 so that more than two members of a family cannot be on the board of directors of a banking company," the BB executive director Jahangir Alam told the FE Wednesday.
Presently, the Banking Companies Act does not allow a family or a company to hold more than 10 per cent share of a bank at a time. However, the amendment is not considering to bring any change in this particular provision, he said.
The draft of the proposed amendments, which is likely to be submitted to the Ministry of Finance (MoF) within this month, is also considering tagging a clause regarding the exposure of banks in the capital market with their equity instead of depositors' money.
"Banks won't be allowed to invest depositors' money in the stock market. Only a portion of their paid-up capital can be invested in the capital market, but the amount is yet to be fixed," said Mr Alam, who is leading the team drafting the amendment.
"We are also working on changing the definition of capital," he said without elaborating.
According to the present Banking Companies Act, if any company of a group becomes defaulter the group is considered defaulter. The proposed amendment is likely to consider the specific company defaulter, not other members of the group, sources said.
The draft of the proposed amendment, which is almost at the final stage, is going to propose the maximum number of directors at 20 instead of the present 30 to 40. The existence of a large number of directors proves to be a barrier to proper governance of the bank, as most of them try to influence loan sanction and other processes, an official said.
The amendment is likely to propose empowerment of the central bank to penalise individuals and organisations directly instead of going to courts for the same. At present offenders take legal protection to save themselves from punishment, and the regulator becomes helpless.
Sources said the draft amendment may propose formation of a central financial regulatory authority, comprising all the financial regulatory bodies, including the BB, the insurance authority, the micro-credit authority and the Securities and Exchange Commission to help monitor the banks' exposures to other areas.
The draft is likely to bring changes to Section-35 of the Act, allowing more than one person as nominee of an account holder.
The BB has been working on the amendment to the Banking Companies Act during the last one year, following the promulgation of an ordinance by the last caretaker government.
Wednesday, June 15
Regulator keeps interest rate cap intact, relaxes repayment rules
FE Report (June 14, 2011)
The micro-finance regulator has kept interest rate ceiling on small-loans intact, but eased rules on grace-period and repayment installments in the face of protests from the industry.
The Microcredit Regulatory Authority said the lending rate cap would remain at 27 per cent when it becomes mandatory for the country's 568 licensed for-profit small lenders from July 1.
But in the face of widespread protests from the micro-lenders, the authority said the grace period for repayment of first installment would be reduced to 15 days from 21 days as was prescribed earlier.
And a borrower must pay back his loans in 46 installments, down from 50 installments set by the MRA in November last year as part of the first government move to streamline the booming sector.
MRA director Sazzad Hossain said the relaxed rules along 27 per cent interest rate cap would be enforced from July 1 this year, with all but one micro-lenders opposing the move.
"We told them that there is no way we can raise the interest rate cap. The 27 per cent cap is logical and it won't affect business of any micro-lender," Mr. Hossain said.
The regulator, however, eased grace period and cut the number of repayment installments in an effort to avert credit defaults and help lenders cope with emergencies, especially during extended bank or government holidays, he said.
"So far all but one micro-lenders have agreed to the latest changes. An order to this effect has been issued this week," he said.
In April, the micro-lenders under the banner of Credit Development Forum and several international charities have protested the cap, saying it would drive many to bankruptcies and high number defaults.
They said the move to streamline the sector could adversely affect rural areas --- home to the majority of the country's 21 million borrowers who last year borrowed some Tk300 billion from these lenders.
In a letter, they argued that the planned extension of grace-period and repayment installments would also cause "indiscipline" in the credit repayment regime.
Mosharraf Hossain, the head of CDF, said micro-lenders who rely on commercial banks for their fund could face lending cap difficult to maintain due to recent hike in interest rates in the banking system.
Mr. Hossain ruled out the possibility of adverse fallout of the cap, saying the MRA has done comprehensive home-work before fixing the rate.
"I can tell you none will be affected. Rather, it'll bring discipline to the sector," he said.
The MRA formed four years back announced the rate ceiling in November last year in an attempt to regulate the micro-lending industry, which has become a financial behemoth in the country.
But despite making astounding profits, some of these lenders have been charging more than 40 per cent interest rate for their small loans, meant to help rural poor and create jobs.
Among the Bangladeshi small lenders, Grameen Bank charges the lowest -- 20 per cent -- interest rate. But the bank isn't technically under the MRA. It's regulated by a separate law.
The micro-finance regulator has kept interest rate ceiling on small-loans intact, but eased rules on grace-period and repayment installments in the face of protests from the industry.
The Microcredit Regulatory Authority said the lending rate cap would remain at 27 per cent when it becomes mandatory for the country's 568 licensed for-profit small lenders from July 1.
But in the face of widespread protests from the micro-lenders, the authority said the grace period for repayment of first installment would be reduced to 15 days from 21 days as was prescribed earlier.
And a borrower must pay back his loans in 46 installments, down from 50 installments set by the MRA in November last year as part of the first government move to streamline the booming sector.
MRA director Sazzad Hossain said the relaxed rules along 27 per cent interest rate cap would be enforced from July 1 this year, with all but one micro-lenders opposing the move.
"We told them that there is no way we can raise the interest rate cap. The 27 per cent cap is logical and it won't affect business of any micro-lender," Mr. Hossain said.
The regulator, however, eased grace period and cut the number of repayment installments in an effort to avert credit defaults and help lenders cope with emergencies, especially during extended bank or government holidays, he said.
"So far all but one micro-lenders have agreed to the latest changes. An order to this effect has been issued this week," he said.
In April, the micro-lenders under the banner of Credit Development Forum and several international charities have protested the cap, saying it would drive many to bankruptcies and high number defaults.
They said the move to streamline the sector could adversely affect rural areas --- home to the majority of the country's 21 million borrowers who last year borrowed some Tk300 billion from these lenders.
In a letter, they argued that the planned extension of grace-period and repayment installments would also cause "indiscipline" in the credit repayment regime.
Mosharraf Hossain, the head of CDF, said micro-lenders who rely on commercial banks for their fund could face lending cap difficult to maintain due to recent hike in interest rates in the banking system.
Mr. Hossain ruled out the possibility of adverse fallout of the cap, saying the MRA has done comprehensive home-work before fixing the rate.
"I can tell you none will be affected. Rather, it'll bring discipline to the sector," he said.
The MRA formed four years back announced the rate ceiling in November last year in an attempt to regulate the micro-lending industry, which has become a financial behemoth in the country.
But despite making astounding profits, some of these lenders have been charging more than 40 per cent interest rate for their small loans, meant to help rural poor and create jobs.
Among the Bangladeshi small lenders, Grameen Bank charges the lowest -- 20 per cent -- interest rate. But the bank isn't technically under the MRA. It's regulated by a separate law.
Body formed to finalise share buy-back policy
FE Report (June 14, 2011)
A private-public committee headed by a functionary of the country's apex chamber has been tasked Tuesday to finalise the buy-back policy as part of an effort to stabilise the country's volatile stock market.
The move comes after questions were raised about a draft buy-back policy, with the central bank reportedly saying the proposed strategy could be manipulated by the listed firms and it might cause more harm than good to the investors.
Manzur Ahmed, an advisor of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) leads the body, which include senior government officials and experts from leading private institutes.
An inter-ministerial meeting at the Ministry of Commerce (MoC) took the decision, with commerce secretary Ghulam Hussain in the chair.
"The committee has been asked to submit their report by July 7. They have been given three major tasks in finalising the report," the secretary told the FE.
Buy-back means repurchase of outstanding shares by a listed company in order to reduce the number of shares on the stock market. The repurchase, sometimes, helps the investors get better price for shares.
In a mature market, companies usually buy back shares either to increase the value of shares still available, or to eliminate any threats by shareholders who may be looking for a controlling stake.
In March finance minister AMA Muhith pledged to introduce the buy-back policy in the country's bourses in an effort to make the capital market stable.
His promise came in the backdrop of one of the worst share market debacles in the country's history. Some experts had said allowing firms to buy back shares could protect the interest of the investors in a rapidly sliding market.
The main benchmark index at the Dhaka Stock Exchange shed more than 45 per cent between December and January, wiping out investment of hundreds of thousands of investors.
But drafting of the buy-back policy proved to be tough task than anticipated as a number of organizations have come up with different opinions as to how the companies should buy buck shares or whether it would benefit the investors.
According to a report, the central bank has said the buy-back policy could lead to further manipulation of the investors and could cause risk to the country's financial sector. It called for harmonisation of the policy with the Companies Act 1994.
Officials said the latest committee will examine whether any clause of the draft buy-back policy, prepared by SEC recently, goes against the spirit of Companies Act, 1994 under which the policy will be included or amended.
The private-public committee has inducted representatives of commerce and finance ministries, Bangladesh Bank, Securities and Exchange Commission and Institute of Cost and Management Accountants of Bangladesh (ICMAB).
The committee will follow the best practices of buy-back policies in the world including those in India, Sri Lanka, Singapore and Japan, officials said.
They added the body will give specific recommendations on fixing value of shares to be bought back by the companies.
A private-public committee headed by a functionary of the country's apex chamber has been tasked Tuesday to finalise the buy-back policy as part of an effort to stabilise the country's volatile stock market.
The move comes after questions were raised about a draft buy-back policy, with the central bank reportedly saying the proposed strategy could be manipulated by the listed firms and it might cause more harm than good to the investors.
Manzur Ahmed, an advisor of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) leads the body, which include senior government officials and experts from leading private institutes.
An inter-ministerial meeting at the Ministry of Commerce (MoC) took the decision, with commerce secretary Ghulam Hussain in the chair.
"The committee has been asked to submit their report by July 7. They have been given three major tasks in finalising the report," the secretary told the FE.
Buy-back means repurchase of outstanding shares by a listed company in order to reduce the number of shares on the stock market. The repurchase, sometimes, helps the investors get better price for shares.
In a mature market, companies usually buy back shares either to increase the value of shares still available, or to eliminate any threats by shareholders who may be looking for a controlling stake.
In March finance minister AMA Muhith pledged to introduce the buy-back policy in the country's bourses in an effort to make the capital market stable.
His promise came in the backdrop of one of the worst share market debacles in the country's history. Some experts had said allowing firms to buy back shares could protect the interest of the investors in a rapidly sliding market.
The main benchmark index at the Dhaka Stock Exchange shed more than 45 per cent between December and January, wiping out investment of hundreds of thousands of investors.
But drafting of the buy-back policy proved to be tough task than anticipated as a number of organizations have come up with different opinions as to how the companies should buy buck shares or whether it would benefit the investors.
According to a report, the central bank has said the buy-back policy could lead to further manipulation of the investors and could cause risk to the country's financial sector. It called for harmonisation of the policy with the Companies Act 1994.
Officials said the latest committee will examine whether any clause of the draft buy-back policy, prepared by SEC recently, goes against the spirit of Companies Act, 1994 under which the policy will be included or amended.
The private-public committee has inducted representatives of commerce and finance ministries, Bangladesh Bank, Securities and Exchange Commission and Institute of Cost and Management Accountants of Bangladesh (ICMAB).
The committee will follow the best practices of buy-back policies in the world including those in India, Sri Lanka, Singapore and Japan, officials said.
They added the body will give specific recommendations on fixing value of shares to be bought back by the companies.
Monday, June 13
Inactive secondary bond market ‘won’t woo undisclosed money’
FE Report (June 13, 2011)
The budgetary move to allow investment of undisclosed money in government bonds won't bear any fruits as the secondary market where these instruments are to be traded remained inactive since 2004.
Dhaka Stock Exchange officials said the secondary bond market was introduced seven years ago at the behest of the International Monetary Fund, but it never took off due to poor interest rates and institutional bottlenecks.
Unlike in the West and major emerging nations where equity and bond markets compete for investors, Bangladeshi authorities could never introduce an effective system to trade government bonds in the secondary market.
"It is hard to understand how undisclosed money can be lured to buy bonds when transaction for such instruments in the secondary market remained inactive for a long time," said Salahuddin Ahmed Khan, an ex-chief executive officer of DSE.
Khan, also a finance professor at Dhaka University, raised questions about sincerity in the government's latest move, saying the authorities should have put in place an effective trading system first before allowing the opportunity in the secondary market.
DSE officials said there have been no "different parameters" for bond trading in the country's premier stock exchange, which make bond transaction virtually impossible in the secondary market.
"That's why bond trading has been inactive by default for years," said a DSE office-bearer, adding the government should seek expertise from international agencies so as to make the secondary market effective.
"A secondary bond market is essential for the country's economy and for the country's millions of investors who look out for safe investment tools. In the West, when equity market suffers, bonds gain," he said.
The official added poor interest rates of the government bonds also make them unattractive for local buyers.
"We know how important the secondary bond market is. But if the interest rate is low and hardly has any chance to outperform equity market, why should an investor buy bond in the secondary market?" he said.
In a developed market there are different parameters for equity and bond market, which allow them to function effectively side by side.
In the budget, the finance minister has allowed investment of undisclosed money in the treasury bonds with a penalty of 10 per cent tax.
Presently, government bonds having four different tenures --- five, 10, 15, and 20 years --- are listed in the stock market. The interest rate varies according to the tenure of the bond.
There are now 212 government bonds listed in the DSE having interest rates ranging from 7.5 per cent to 9.5 per cent. Each of these bonds has a face value of at least Tk 0.1 million.
When asked about the present status of bond market trading, DSE senior vice president Ahsanul Islam Titu said bond transaction now occurs only in the primary market and is limited among the institutional investors.
Every week the bonds are being transacted through an auction. There are 13 primary dealers --- mostly banks and non-banking financial institutions - who do the transaction.
"If the government really wants to activate the secondary market for bond trading, first of all it has to stop trading of such bonds through primary dealers," Titu said.
"We welcome the government's budgetary move to allow investment of undisclosed money in government bonds. But the government should also take necessary steps to make the secondary bond market a reality," he said.
Apart from the government bonds, three corporate bonds are also listed in the DSE. All of them are trading below their face-value.
Even the interest rates of these corporate bonds are higher than that of the government bonds, DSE officials said.
"To minimize the risk of investment, it is essential to activate bond market. A lot of investors will be interested to invest in bonds once they see better return for their investment," another official added.
The budgetary move to allow investment of undisclosed money in government bonds won't bear any fruits as the secondary market where these instruments are to be traded remained inactive since 2004.
Dhaka Stock Exchange officials said the secondary bond market was introduced seven years ago at the behest of the International Monetary Fund, but it never took off due to poor interest rates and institutional bottlenecks.
Unlike in the West and major emerging nations where equity and bond markets compete for investors, Bangladeshi authorities could never introduce an effective system to trade government bonds in the secondary market.
"It is hard to understand how undisclosed money can be lured to buy bonds when transaction for such instruments in the secondary market remained inactive for a long time," said Salahuddin Ahmed Khan, an ex-chief executive officer of DSE.
Khan, also a finance professor at Dhaka University, raised questions about sincerity in the government's latest move, saying the authorities should have put in place an effective trading system first before allowing the opportunity in the secondary market.
DSE officials said there have been no "different parameters" for bond trading in the country's premier stock exchange, which make bond transaction virtually impossible in the secondary market.
"That's why bond trading has been inactive by default for years," said a DSE office-bearer, adding the government should seek expertise from international agencies so as to make the secondary market effective.
"A secondary bond market is essential for the country's economy and for the country's millions of investors who look out for safe investment tools. In the West, when equity market suffers, bonds gain," he said.
The official added poor interest rates of the government bonds also make them unattractive for local buyers.
"We know how important the secondary bond market is. But if the interest rate is low and hardly has any chance to outperform equity market, why should an investor buy bond in the secondary market?" he said.
In a developed market there are different parameters for equity and bond market, which allow them to function effectively side by side.
In the budget, the finance minister has allowed investment of undisclosed money in the treasury bonds with a penalty of 10 per cent tax.
Presently, government bonds having four different tenures --- five, 10, 15, and 20 years --- are listed in the stock market. The interest rate varies according to the tenure of the bond.
There are now 212 government bonds listed in the DSE having interest rates ranging from 7.5 per cent to 9.5 per cent. Each of these bonds has a face value of at least Tk 0.1 million.
When asked about the present status of bond market trading, DSE senior vice president Ahsanul Islam Titu said bond transaction now occurs only in the primary market and is limited among the institutional investors.
Every week the bonds are being transacted through an auction. There are 13 primary dealers --- mostly banks and non-banking financial institutions - who do the transaction.
"If the government really wants to activate the secondary market for bond trading, first of all it has to stop trading of such bonds through primary dealers," Titu said.
"We welcome the government's budgetary move to allow investment of undisclosed money in government bonds. But the government should also take necessary steps to make the secondary bond market a reality," he said.
Apart from the government bonds, three corporate bonds are also listed in the DSE. All of them are trading below their face-value.
Even the interest rates of these corporate bonds are higher than that of the government bonds, DSE officials said.
"To minimize the risk of investment, it is essential to activate bond market. A lot of investors will be interested to invest in bonds once they see better return for their investment," another official added.
Surcharge on wealth to be levied on taxpayers ==> Valuation to be determined at historical prices
FE Report (June 13, 2011)
The proposed surcharge on personal wealth or assets will be borne by those tax-paying individuals whose net worth of such property (movable and immovable) exceeds Taka 20 million (2.0 crore), revenue board officials said.
Those who do not have income earnings beyond the annual tax-exempted limit and as such do not file annual tax returns, will not have to pay the proposed surcharge under the Income Tax Law.
When asked about those who do not have tax identification number (TIN), despite enjoying annual income above the tax-exempted limit and also having assets or wealth above the limit of Taka 20 million, a concerned official said these are cases of tax evasion or avoidance and should not be mingled with the proposed wealth or property surcharge.
The National Board of Revenue (NBR), upon the approval of the proposed Finance Bill 2011 by the Jatiya Sangshad (JS) and being assented to by the President of the Republic, will collect surcharge at the rate of 10 per cent on the value of assets only on the amount that exceeds the limit of Tk 20 million, a senior income tax official told the FE Sunday.
The taxmen will not collect any "surcharge" on the people do not have any taxable income even though having assets valued at above the proposed limit, he said.
The taxmen will accept the value that the taxpayer will show in their tax return files, he added.
The cost of land, real estate property or other forms of assets or wealth will be considered for valuation under the proposed surcharge at acquisition or historical prices, he said.
Explaining this, he said the base-price for slapping surcharge will be the original cost or acquisition value of property.
"If any taxpayer shows the land value at the price when he purchased it, to cite an example, 20 years ago, the taxmen will accept that value," the official said.
According to an estimation of the revenue board, 20 per cent of the existing taxpayers might fall under the new tax measure that will come within the purview of Income Tax Act.
However, there are yet no detailed studies about how many taxpayers have net personal assets worth above Tk 20 million.
The new rule for imposition of surcharge on income tax is incorporated in the Finance Bill-2011, placed in the parliament on June 9.
Taxmen said taxpayers in the Large Taxpayers Unit (LTU) will mostly come under the category of the proposed surcharge. All of them are directors of different banks and companies.
There are a total of 706 individual taxpayers in the LTU. Of them, 675 are active taxpayers while others file nil returns or had died.
The proposed surcharge on personal wealth or assets will be borne by those tax-paying individuals whose net worth of such property (movable and immovable) exceeds Taka 20 million (2.0 crore), revenue board officials said.
Those who do not have income earnings beyond the annual tax-exempted limit and as such do not file annual tax returns, will not have to pay the proposed surcharge under the Income Tax Law.
When asked about those who do not have tax identification number (TIN), despite enjoying annual income above the tax-exempted limit and also having assets or wealth above the limit of Taka 20 million, a concerned official said these are cases of tax evasion or avoidance and should not be mingled with the proposed wealth or property surcharge.
The National Board of Revenue (NBR), upon the approval of the proposed Finance Bill 2011 by the Jatiya Sangshad (JS) and being assented to by the President of the Republic, will collect surcharge at the rate of 10 per cent on the value of assets only on the amount that exceeds the limit of Tk 20 million, a senior income tax official told the FE Sunday.
The taxmen will not collect any "surcharge" on the people do not have any taxable income even though having assets valued at above the proposed limit, he said.
The taxmen will accept the value that the taxpayer will show in their tax return files, he added.
The cost of land, real estate property or other forms of assets or wealth will be considered for valuation under the proposed surcharge at acquisition or historical prices, he said.
Explaining this, he said the base-price for slapping surcharge will be the original cost or acquisition value of property.
"If any taxpayer shows the land value at the price when he purchased it, to cite an example, 20 years ago, the taxmen will accept that value," the official said.
According to an estimation of the revenue board, 20 per cent of the existing taxpayers might fall under the new tax measure that will come within the purview of Income Tax Act.
However, there are yet no detailed studies about how many taxpayers have net personal assets worth above Tk 20 million.
The new rule for imposition of surcharge on income tax is incorporated in the Finance Bill-2011, placed in the parliament on June 9.
Taxmen said taxpayers in the Large Taxpayers Unit (LTU) will mostly come under the category of the proposed surcharge. All of them are directors of different banks and companies.
There are a total of 706 individual taxpayers in the LTU. Of them, 675 are active taxpayers while others file nil returns or had died.
Thursday, June 9
CSE places proposals to SEC on book building method
FE Report (June 09, 2011)
The Chittagong Stock Exchange (CSE) has proposed the SEC to fix the indicative price of a company willing to go public under revised book building method based on its weighted average of fundamentals.
The CSE officials placed a series of proposals to the SEC in this connection ahead of probable amendment to book building method.
“We placed the proposals to the Securities and Exchange Commission (SEC) recently in a move to help the securities regulator in this connection,” said the CSE president.
According to CSE proposals, the indicative price of a company will be the weighted average of its 25 per cent of net asset value (NAV), 25 per cent of past earning per share, 30 per cent of future earning per share, 10 per cent of price earning (P/E) ratio of similar stock and 10 per cent price book value ratio of similar stock.
Earlier, the SEC proposed an indicative price, which will not exceed the average P/E ratio, calculated on the average earning of preceding three years or five times of net asset value, whichever is lower but not less than NAV per share.
CSE's draft proposal stated the issue manager must follow the due diligence list provided by the SEC during calculating P/E ratio and book value ratio of similar stock.
It proposed not to allow the calculation of EPS by annualising latest quarterly financial statement or semi-annual EPS.
It also proposed mandatory registration of the valuer company with the SEC, which will determine the criteria of such firms.
The CSE also proposed for a provision for institutional investors to offer price in the range of 10 per cent up and down of the indicative price.
It further proposed for an expert panel comprising the representatives of Institute of Chartered Accountants of Bangladesh (ICAB), Institute of Cost and Management Accountants Bangladesh (ICMAB) and both the bourses to scrutinise and verify the audited financial statements submitted seeking permission for going public.
The Chittagong Stock Exchange (CSE) has proposed the SEC to fix the indicative price of a company willing to go public under revised book building method based on its weighted average of fundamentals.
The CSE officials placed a series of proposals to the SEC in this connection ahead of probable amendment to book building method.
“We placed the proposals to the Securities and Exchange Commission (SEC) recently in a move to help the securities regulator in this connection,” said the CSE president.
According to CSE proposals, the indicative price of a company will be the weighted average of its 25 per cent of net asset value (NAV), 25 per cent of past earning per share, 30 per cent of future earning per share, 10 per cent of price earning (P/E) ratio of similar stock and 10 per cent price book value ratio of similar stock.
Earlier, the SEC proposed an indicative price, which will not exceed the average P/E ratio, calculated on the average earning of preceding three years or five times of net asset value, whichever is lower but not less than NAV per share.
CSE's draft proposal stated the issue manager must follow the due diligence list provided by the SEC during calculating P/E ratio and book value ratio of similar stock.
It proposed not to allow the calculation of EPS by annualising latest quarterly financial statement or semi-annual EPS.
It also proposed mandatory registration of the valuer company with the SEC, which will determine the criteria of such firms.
The CSE also proposed for a provision for institutional investors to offer price in the range of 10 per cent up and down of the indicative price.
It further proposed for an expert panel comprising the representatives of Institute of Chartered Accountants of Bangladesh (ICAB), Institute of Cost and Management Accountants Bangladesh (ICMAB) and both the bourses to scrutinise and verify the audited financial statements submitted seeking permission for going public.
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