Muhith Announces Stock Market Bailout Measures

(Banks to plough back profits, index circuit breaker withdrawn )
Finance Minister AMA Muhith announced Sunday a host of measures, including re-investment of profits the commercial and merchant banks earned from share trading, to resuscitate the country's collapsing stock market.

The finance minister told a press briefing that the commercial and merchant banks would plough back their profit in the stock market as a major bailout measure.

The listed companies would also be able to buy back theirs shares, he said.

"Banks and the merchant banks have earned hefty profits from the stock markets. Since the profits thus earned are yet to be assimilated into their accounts would be re-utilised in the stock market," he said at the end of a daylong meeting held at the finance ministry with policymakers and stakeholders.

Necessary circulars and directives relating to decisions taken at the meeting will be issued today (Monday), the minister informed

He expressed the hope that the institutional investors would be active again in the stock markets following the latest decisions.

Muhith also said that there would be no index circuit breaker from the next trading session at the bourses. The Securities and Exchange Commission (SEC) last week introduced the circuit breaker at the Dhaka Stock Exchange (DSE) with a view to stopping free fall of share prices.

He expressed his optimism that the latest measures would help bring back confidence among the investors in the stock market.

"I hope the market will stabilise. You will see a positive movement on Tuesday in the major bourses," Muhith.

He said a committee would be formed within the next 15 days to identify the culprits responsible for creating instability in the market.

Identifying the culprits and bringing them to book is not a difficult task under an automated trading system. Nothing could be done to deal with the share market scam of 1996 for lack of witnesses, he said.

The finance minister also dismissed the allegation of siphoning of money from the stock markets.

"A very nominal amount was taken out of the market," he said.

The minister said he was against the closure of stock market operations saying 'it is not a good practice.'

"It should be allowed to run on its own track to ensure sustainability of the market," said the finance minister.

He, however, said trading at the bourses would remain suspended today (Monday) for the sake of ensuring the effectiveness of the new decisions.

The minister claimed that the fundamentals of the stocks were good saying "The current average price-earning ratio is hovering around 23, which is not that terribly high," he said.

He, however, said that prevailing situation in the stock market is not risk-free.

The finance minister said the government would carry out a reform programme to stop recurrence of the recent events in the stock market and ensure a mid-term solution.

"We will redesign the existing Book Building method and Private Placement regulations as a part of the proposed reform package meant to revive and putting the capital market on the right track," he said.

He said the operation of Book Building method would remain halted until further review.

The transactions of the Mobil Jamuna Lubricant, which has already raised over Tk 23 billion from the stock market, would also remain suspended, he said.

"Retention of the money raised against Mobil Jamuna would be done," he said.

The permission given by the SEC to raise capital by the MI Cement through Book Building method would also remain suspended, he said.

The finance minister also said that the market regulator would fix a mandatory margin loan limit for the merchant bankers and brokerage houses to offer to their clients.

Besides, a portion of margin loan will be determined by bank\brokerage house- client relationship.

The current circuit breaker on the price movements of listed companies will be reviewed, he said.

To ensure a sustainable stock market, the Bangladesh Bank, SEC and the Registrar of Joint Stock Companies and Firms would hold discussions on capital market issues quite frequently and more comprehensively.

A BB representative will be included in the SEC's core decision making body, Muhith said.

The consultative committee on capital market would be reconstituted bringing down the number of its members to ensure its effectiveness, he added.

Prime Minister's Economic Affairs Adviser Dr Moshiur Rahman, BB Governor Dr Atiur Rahman, SEC Chairman Md Ziaul Haque Khondoker were among others were present at the briefing.