If we knew how things going to end or where our journey would take us, do you still make the same decisions? Or would we choose a different path? Can we even escape our fate? Or something what is deep within us lead us to the same end, like an invisible hand?
All of those questions must arise in the mind of investors, regulators and market markets during the longest bearish market trend of the Dhaka bourse. When most of the pandemic-hit markets had been hovering near their historic high level, or at a merely corrected price level. Stock markets in the United States, Europe, India, or even in Pakistan – all came through a prosperous journey after the global financial crisis a decade ago. Investors in Bangladesh are yet to heal the wounds from the 2010-11 market crash as the overall market is still depressed and gradually deteriorating.
For the last couple of years Two bourses, Dhaka Stock Exchange Ltd (DSE) and Chittagong Stock Exchange Ltd (CSE), who operate in the capital market of Bangladesh shows same type of downtrend. Even after the DSE successfully secured a strategic partnership with the Shenzhen-Shanghai stock exchange consortium in 2018 – following its demutualization in 2013. Since then, the market has been bearish, and revenue from daily transactions has fallen drastically. Meanwhile, trading on the country’s premier bourse sank to its lowest level in 13 years on last June 21 with a turnover of Tk 38.64 as investors largely stayed away due to pandemic and floor price. The previous lowest turnover of Tk 40.39 crore was recorded on April 24 in 2007, data from the premier bourse showed.
Despite our overall economy has been growing the capital market showed continuously nosedive posting a negative growth throughout the year 2019 while bourses in other neighboring countries and emerging Asian countries posted growth in the period. In the year 2019, the return at Indian key index, SENSEX, was 14.70 per cent, followed by 10.70 per cent of Pakistani KSE100, 8.10 per cent of Vietnamese VNINDEX, 1.0 per cent of Thai SET and 2.30 per cent of Sir Lankan CSEALL. But Dhaka Stock Exchange (DSE) recorded negative index return of 17.30 per cent in last year among the Asian countries.
Like German philosopher Arthur Schopenhauer said, “Man can do what he wills, but he cannot will what he wills.” Every initiative from the Government, Authorities seems unsuccessful.
But, once a wise man said, “There was never a night or a problem that could defeat sunrise or hope.” After imposing celling to stop free fall of share price and after a 66-day break, due to Covid-19 pandemic market sentiment turns bullish. All credit goes to the new BSEC commission. Every step they are taking so far is hugely appreciated by the investors and the market makers.
Here are some important facts that’s fueling the long-awaited uptrend of the market:
>> On July 29, the central bank declared monetary policy for the next six months where bank rate was brought down to 4 percent from existing 5 percent. Bangladesh Bank already announced MPS for the next twelve months. The key takeaway is the reduction in repo rate from 5.25% to 4.75%. This is the third reduction in policy rates since March 2020. It is clear that Bangladesh is getting into an interest rate regime it has not seen before. High quality local banks are offering term deposit rates that are below inflation rate (4.5% vs 5.5%). The government treasury yields reflect this new normal (90 days Bills yield 4.45%). However due to a lack of well-developed corporate bond market we are unable to see the impact on corporate bond yields and credit spreads. The Bangladesh Bank also set a 14.8 growth target for the private sector and 44.4 percent for the public sector in the monetary policy.
While talking to a few asset managers and investment bankers, it was learned that institutional investors can now get money at a cheaper rate for investing in the capital market.
One thing is for sure. 2020 is suddenly looking quite a bit more interesting. Until recently, it was all gloom and doom but the last few days look promising. Who would have guessed that FX reserves will increase by US $4bn in a couple of months during this pandemic? That is more than 10% increase in reserves.
>> The official data recently released by the Bangladesh Bureau of Statistics confirming 5.24% economic growth in the last financial year ending in June should be considered as a “great news” in the time of the coronavirus pandemic when global economies are experiencing the worst crisis since the Great Depression in the 1930s.
That should be a “great news” because the growth rate negated the chilling forecast made by the World Bank in June that Bangladesh’s GDP growth would come down to only 1.6% from a high flying 8.15%.
>> The $3.9 billion export in July brought a glimmer of hope about a V-shaped recovery. A positive 0.6 percent growth relative to exports in July last year came after nearly eleven months of sustained year-on-year decline with the sole exception of December 2019. According to the countries well known economist Dr. Zahid Hussain, A V-shaped recovery in Bangladesh’s exports depends foremost on the state of health in the global and domestic economy. Assuming the bottom is past, recovery will also depend on how the global multilateral trading system morphs.
>> The United Kingdom’s Department for International Department (Dfid) has launched a new funding to protect workers in developing countries supplying goods to the UK amid the Covid-19 fallout threatening global supply chains.
Under the £6.85 million scheme, Dfid will partner with businesses including Marks & Spencer, Morrisons, Primark, Sainsbury’s, Tesco, and Waitrose to improve conditions for workers in countries including Bangladesh, Ghana, and Rwanda, reports The Daily Telegraph.
>> The BSEC is planning to work on the junk stocks in three stages.
In the first phase, it will upgrade the companies that are very close to booking profits, or have large retained earnings or adequate cash flow.
There are two to five companies in this stage and a decision will be taken about them by checking the last few years’ financial reports, said Islam, who was previously the dean of the Dhaka University’s faculty of business studies.
In the second stage, the regulator will support the companies that are struggling but are making an honest effort to return to profit.
“And in the final stage, we will punish the worst performers by either changing their boards or by deploying administrators,” Shibli Rubayat-Ul-Islam said, who is the newly appointed chairman of BSEC.
>> The Bangladesh Securities and Exchange Commission (BSEC) has issued an ultimatum to 42 listed companies who failed to comply with the mandatory rule on joint ownership of a minimum of 30 percent shares in their firms’ paid-up capital. The commission has sent letters to the companies asking them to comply with the mandatory 30 percent shareholding rules within 60 days, sources said. The purchase of shares must be announced within 15 working days. If any company fails to comply with the rules within this time; the commission will take regulatory actions.
All those initiatives, incentives and news giving hope to the investors as famous actor Christopher Reeve (the superman of Hollywood) said, once you choose hope, anything’s possible.
New BSEC team wants to establish the concept that capital market is the main source of fund for industrialization. BSEC Chairman, Professor Shibli Rubayat-Ul-Islam pledged to give support to work with VCPEAB on policies to nurture the emerging industry. BSEC will Help Boost the Startup and Venture Capital Ecosystem. He also said, “Our stock market has remained only equity-based. I will focus on launching bond, debenture, Sukuk and alternative investment fund in the market”. He also wants to make DSE a ‘truly’ digitalized trading platform. All those promises and visions is helping all the interest parties gaining confidence and hope.
Hopefully, like Lotus, capital market will shows us the ability to rise from the mud! As Netflix new superhit “DARK” TV serial theory says “Der anfang ist die ende und der ende ist der anfang.” Means, the beginning is the end and the end is the new beginning.
Author: Sharif Jamil Created: August 16 2020
Futureproofing – has been the preoccupation of bKash, the company that revolutionised the mobile financial service in Bangladesh, in recent years.
Alif Group has expressed its interest in buying 25 percent shares in BD Welding at an agreed rate from ICB
Bangladesh Welding (BD Welding) Electrode Ltd will change its category from “Z” to “B” on the stock market by issuing dividends.
The company will change its category in order to implement the transfer of its shares held by the state-owned Investment Corporation of Bangladesh (ICB) to Alif Group – a local private sector investor.
Alif Group has expressed its interest in buying 25 percent shares in BD Welding at an agreed rate from ICB.
Earlier, in July 2019, Alif Group and ICB signed a memorandum of understanding (MoU) for the acquisition of the shares. However, the deal was not implemented as BD Welding has been in the “Z” category of the stock market since 2015.
The company has also failed to hold its annual general meeting (AGM) since the 2018 financial year.
As per the securities law, ownership of a company that fails to issue dividends and hold annual general meetings cannot be transferred.
Owner company ICB sought release from this law from the Bangladesh Securities and Exchange Commission (BSEC), to sell its entire holdings to Alif Group, but the regulator did not agree with ICB.
Therefore, as an alternative solution, ICB, on behalf of the company, filed a petition with the High Court to hold the AGM and board meeting of BD Welding for the financial years 2018-19 and 2019-20.
In February this year, the High Court gave permission to BD Welding to hold a board meeting and an AGM.
After the permission was granted, BD Welding held its board meeting on Sunday.
The company’s board of directors has recommended no dividend for the year ended on June 30, 2018. However, it recommended a one percent stock dividend for the year ended on June 30, 2019.
The dividend would be approved at the AGM dated September 17, 2020. To ensure shareholders’ participation, the record date is set for August 31 this year.
BD Welding has posted a loss per share of Tk0.08 for the year ended on December 31, 2019. Its net asset value per share was Tk11.61.
SM Nurul Islam, managing director of BD Welding, who currently owns around five percent of the company, said that after the dividend approval at the AGM, the company will move from “Z” to “B” category. Therefore, ICB will face no troubles in selling the shares to Alif Group.
He added, “The company is now facing a cash crisis to set up a new factory. We have not been able to manage funds from any other sources because of ICB’s obligation. Alif wants to invest in BD Welding as the owner of the company. However, due to these complications, it has not invested yet. I hope in the next few months this issue will be resolved and we will get money to run this company.”
Earlier, in 2017, BD Welding sold its land in Chattogram to BSRM Group to repay a bank loan. Recently, the company purchased land in Dhamrai to set up a new factory with existing machinery.
In 1999, the company entered the stock market to collect funds in setting up an oxygen plant in Chattogram. It was competing with the multinational Linde Bangladesh and some new entrants until its raw material imports were disrupted because of a lack of banking support due to defaulted loans.
Losing the edge gradually pushed the company lower and it ended up halting production.
In 2009, five out of eight sponsors sold their entire holdings to the ICB and now the state-owned investment entity is chairing and controlling the BD Welding board.
The company’s paid up capital is Tk42.92 crore. Out of total shares, general shareholders hold 65.39 percent.
The closing price for the company’s shares was Tk22.20 per share on the Dhaka Stock Exchange on Monday.
Futureproofing – has been the preoccupation of bKash, the company that revolutionised the mobile financial service in Bangladesh, in recent years.
Which is why, the company is fine with forfeiting profits in the short-term if it means its future dominance is assured.
Over the past two years, the company has invested more than Tk400 crore for product development and marketing activities, according to the annual statement of BRAC Bank, the parent company of bKash.
And in that time, its net profit slid from Tk18.5 crore to Tk62.5 crore in the negative – in what is a steep comedown from its dizzy heights in the preceding years.
In 2019, its total revenue grew 10.9 percent year-on-year to Tk2,416 crore.
“We will continue this investment in 2020 and the company will have to make a loss this year also,” Kamal Quadir, chief executive officer of bKash, told The Business Standard recently.
The company, which is 20 percent owned by Chinese payment giant Alipay, has the capital to absorb the losses.
“The loss is the part of our planned investment,” Quadir added.
But bKash’s move to go for wholesale technology upgrade could not be more serendipitous. The global coronavirus pandemic’s turbocharging of digitalisation means the company is in good stead to make the most of the situation.
Since the onset of the pandemic in March, bKash made loss Tk21 crore in charges from sending money and withdrawals and Tk27.50 crore from disbursing salaries of garment workers from the government’s Tk5,000 crore stimulus package, according to Shamsuddin Haider Dalim, head of corporate communications and public relations at bKash.
It also gained about 70 lakh new customers to take the tally to 4.50 crore in June, according to bKash.
To put things into perspective, Rocket, one of bKash’s main rivals, gained 18 lakh fresh customers during the period.
And the reason for the gulf in new customer onboarding could very well be the well-oiled mobile app that bKash had rolled out in 2018 for both the iOS and Android operating systems, to which it has been incrementally adding on functionalities.
“2019 was a critical period in terms of the business achieving a technological breakthrough and sustained growth across key numerical metrics,” the company said in the annual report, while stressing customer and agent apps.
Today, that app has made the process of new customer onboarding as fuss-free as possible and paying for mobile recharge, shopping, utility bills, internet charges, education fees, tickets and credit card bills as seamless a process as possible.
It allows transfer to and from bank accounts and topping up balance with bank cards.
In short, the app has enough functionalities and interconnectedness to make it an appealing platform for both urban and rural populations alike, and is most likely to stand tall to the emerging threat of upstart Nagad, the mobile financial service arm of Bangladesh Post Office.
Nagad though was ahead of bKash in gaining customers during the pandemic: it saw fresh account opening of 1.26 crore since March to take the tally to 3.5 crore.
Until March, Nagad, which was rolled out in October 2018, had enjoyed disproportionately higher transaction limits and offered lower transaction charges due to being out of the purview of the central bank thanks to the postal act – a privilege that allowed it cannibalise a chunk of other MFS operators’ subscribers.
This could perhaps explain the slump in bKash’s market share to 50 percent at the end of 2018 from 67 percent in the previous year, according to data from the Bangladesh Bank.
Today, Nagad, which has received an interim licence from the BB to operate as an MFS as opposed to its previous form of being a digital financial service provider, is the number 2 player in the market, overtaking Rocket.
And Rocket, the MFS arm of Dutch-Bangla Bank, was coasting on the reputation of its parent. Last year, its transaction value declined 9.54 percent, when bKash saw a 15.7 percent rise. Rocket saw a 10 percent growth in customer base last year, while bKash saw a 23 percent growth.
“Our main target is to bring good experience to customers, ensuring top compliance practice and investment in technology. We are focusing on these three areas,” Quadir said.
He said it is expensive to make sure all compliances in line with requirements of the Bangladesh Bank and the BFIU (Bangladesh Financial Intelligence Unit) and investment in technology.
bKash started its journey in July 2011 as a joint venture between BRAC Bank and American Money in Motion.
Later on, the International Finance Corporation (IFC) of the World Bank Group and Bill & Melinda Gates Foundation joined the mission through equity partnership in April 2013 and April 2014 respectively.
In April 2018, bKash also onboarded Ant Financial Services Group as a strategic partner. The partnership involves Ant Financials investing in bKash and increasing its technological capabilities, allowing it to provide greater convenience and security in mobile financial services.
The company created direct employment opportunity for more than 1,400, and its 226 active distribution houses, 230,000 agents and numerous agencies spread throughout the country indirectly provide livelihoods to thousands more.
Due to the interest rate cap, banks will shy away from lending and ultimately hurt the economy and businesses, say bankers
The banking sector will no longer be the goose that laid the golden eggs when it comes to supplying money to the economy as the lending rate cap and pandemic have put the industry in enormous challenge.
They made the remark on Saturday while speaking at an online discussion with The Business Standard over the current state of the banking sector.
Dr Zahid Hussain, former lead economist of the World Bank’s Dhaka office, moderated the discussion.
“Banks are not charitable organisations. They are publicly listed companies. They have responsibilities to provide financial value to their shareholders. They cannot charge fees and prices due to lending rate cap,” said Selim RF Hussain, managing director of Brac Bank.
As a result, banks will shy away from SME and retail lending, ultimately hurting the national economy and domestic businesses. Small and medium enterprises (SMEs) and retail businesses will die off in less than a year, he said.
“The banking sector is a goose that lays golden eggs. we should not harm the goose, so that bank can continue to lay golden eggs in future,” he explained with the help of the famous fable from Aesop’s tales.
In the upcoming monetary policy, the Bangladesh Bank should give some flexibility in the lending rate to save retail and SME businesses, Selim further said.
Back in the 2016-17 fiscal year, lending rate of private banks came down to 7-8 percent, said Rahel Ahmed, managing director of Prime Bank.
Nobody needed to “instruct” banks to bring down the lending rate at the time, he said. Before imposing the interest rate cap, banks were lending at 11 percent to 12 percent.
“So, borrowers get a two percentage point reduction in lending rate, which does not have much impact on their businesses. On the contrary, through this interest rate cap, we are sucking out money from the banking sector,” he said.
Rahel added that depositors are contributing to 87 percent of the money in banks, but “we have forgotten about them.”
“We are only trying to serve borrowers by reducing the interest rate.”
He further said the Bangladesh Bank has been giving regulatory forbearance by suspending installments, which is ultimately helping bad borrowers. “Banks will be in serious trouble when the forbearance ends,” he stated.
Since the interest rate is fixed, announcing the monetary policy is just a formality now, said Faruq Mainuddin Ahmed, managing director of Trust Bank.
It is true that if retail businesses are destroyed, large businesses will also not be viable, he said.
“But I’ll not prefer to lend at a 9 percent interest rate to retail and SME segments; rather, I will prefer to invest in government treasuries,” he said.
At present, consumer financing has almost stopped, he added.
“We are emphasising only the garment exports, but giving importance to the domestic market will boost our GDP,” Faruq opined. He said it was the market forces that brought down lending rates to single digits in 2016 and 2017. So, this should also have been market-driven.
The economy of Bangladesh grew in the free market economy regime and private commercial banks mostly contributed to industrialisation. Most large industrial loans came from private banks, which were supposed to come from the Bangladesh Shilpa Bank.
“If free interest rate was not a problem before, why is it suddenly such a big problem now?” he questioned.
It should be found out whether the entire business community demanded a lending rate cap or only some vested groups, he suggested.
In his observations, economist Dr Zahid Hussain said, “Deeper problems like governance and high default loans have to be addressed. Otherwise life support will not work in keeping the banking sector operational.”
As an immediate action, Bangladesh Bank can give some indications in the new monetary policy on how much flexibility it can bring to the interest rate cap, he said. During this pandemic, both demand and supply have been disrupted. Monetary policy can be expansionary, but how effective that can be will depend on where expansion is going.
If SMEs and cottage industries remain credit-starved due to the interest rate cap, then that expansionary monetary policy will not boost production, he said.
“The interest rate cap will give short term benefits to corporate and commercial clients during this pandemic, but in the medium term, it will certainly shrink private sector credit growth,” said Selim RF Hussain.
He said private sector credit growth has already started sliding, and it will be slower in the coming months because there is no risk premium and prices are lower than the recovery costs.
The SME and retail portfolio of Brac Bank is around Tk16,000 crore – now a complete loss-maker.
It is hard to believe that the 16.7 percent private sector credit growth target set in the new budget can be achieved, Selim said.
He added that people must have money to spend in order for consumption to get a boost.
“We are focusing on garment exports, but our domestic market is quite large compared to the export market. The domestic market has to be made more vibrant. If banks cannot provide money for spending, people will not consume.”
The bankers said that an interest rate cap does not exist anywhere in the world. The concept of bringing down the lending rate is good, but that should be done through free market dynamics – not through artificial pricing.
Artificial pricing did not succeed in the past 30 years.
The banking sector needs to be reformed, otherwise we are heading towards a big disaster. Default loans are the biggest challenge for the sector, which is the outcome of a lack of governance, Selim said.
It is now difficult for the bank to bring back money from defaulters due to vulnerability in the regulatory framework.
When artificial pricing is imposed on a free market economy, whether it is on the banking sector or on the stock market, there will be negative fallouts.
It has already been proven in the last 30 years that what the negative impacts can be for imposing lending rate caps.
Selim said Kenya is the latest example of this; their government had to roll back from the previous decision of lending rate cap several years ago.
“The retail and SME sector should be exempted from rate cap to increase money flow into people’s hands,” he said.
“Do not consider the banking sector as a charity. A bank cannot be a non-profit organisation. It has to be a commercially viable profit-making organisation. It is a publicly listed entity that must generate appropriate return on assets, return on equity.
“When you randomly throw an axe at the banking sector, banks will fall, eventually impacting every sector of the economy,” said the Brac Bank managing director.
The Dhaka Stock Exchange (DSE) has decided to recommend tougher criteria for awarding new licences for brokerage houses.
The DSE board of directors came up with the decision during a meeting on Thursday.
The premier bourse has got extended time, till mid-July, to comment on the Bangladesh Securities and Exchange Commission (BSEC) proposed Trading Right Entitlement Certificate (TREC) Rules, 2020.
Md Eunusur Rahman, chairman of the DSE board, told The Business Standard, “The board discussed the issues: the new recommendations.”
“The discussion points will go through some processes before being communicated to the regulator,” Eunusur said while declining to share any details.
However, sources confirmed The Business Standard that the board decided to recommend a minimum paid-up capital requirement of Tk10 crore for companies interested to own a brokerage licence at the DSE.
The draft TREC Rules published on March 25 suggested that paid-up capital of only Tk3 crore would be enough to avail a TREC – only a brokerage licence, not membership or shares of the bourses.
The proposed rule drafted in line with the previous recommendations of the DSE board had ignited fury among the exchange members as they found the criteria to allow new brokerage players insufficient to ensure capital adequacy and responsibility.
The DSE Brokers’ Association (DBA) had served a legal notice to the DSE board in the second week of April, pointing out the gaps in the very generous conditions offered for new entrants.
They, as shareholders, also had threatened to dissolve the board in a general meeting of shareholders if the board failed to respond to their demands – meant for a healthy brokerage industry.
However, in yesterday’s meeting, the DSE board had come up with much tougher recommendation plans that included non-refundable Tk2 crore registration fees instead of Tk5 lakh of the draft rule, application form fee of Tk10 lakh instead of Tk1 lakh proposed earlier.
Security deposit, which a brokerage firm needs to maintain with its bourse, was recommended to be Tk3 crore.
However, the draft rule proposed the amount to be Tk2 crore only.
In the legal notice, the association of the DSE members expressed their concern that the proposed weak criteria would pave the way for some vested quarters including shell companies to be in brokerage services.
However, brokerage services require the same level of trustworthiness and reliability as the one needed in banking.
The DBA also expressed its concern that some new entrants with their less invested capital might tend to wilfully default transaction settlements which will be devastating for investors and the capital market.
Their concern is more relevant now as Crest Securities became the eighth member firm to fail in transaction settlements.
And its directors went into hiding while its anxious clients are gathering here and there every day to make sure that they get back their securities and cash balance in investment accounts.
However, the DSE in a press conference this week expressed its commitment to protecting the interest of the brokerage clients of Crest Securities.
The DSE has frozen all assets of Crest Securities and made arrangements to pay the stock brokerage firm’s clients off from that.
If the assets appear to be insufficient, the exchange will sell off the firm’s membership and TREC licence in the DSE.
Members, as the owners of the bourse, received a TREC or brokerage licence by default during demutualisation and the exchange is going to allow new entrants in the business in coming days.
The new players will only get a business licence, no share at the exchange company.
Experts believe that the new licence awarding process will benefit the market only if firms with specialised skill-sets join the industry.
Or else, it would be another brick in the wall and will create further overcrowding in an already struggling industry.