Subject: Gen. Moeen: SEC tightens loan rules today, coincidental or correlated?
Very interesting development though it must be coincidental but worth to take a look at new Securities and Exchange Commission rule Tuesday, October 21st 2007 imposed a bar on merchant banks from granting loans with more than 1:1 ratio to clients, in a bid to rein in excess liquidity in the markets.
The new margin rule set by SEC will bar merchant banks from extending credit to their own directors, executives, sponsor-shareholders and to the nearest relatives of employees.
I doubt it has anything to do with General Moeen U. Ahmed's controversial Trust Bank home loan of 1 crore BD Taka but came in a time when this has become not just the Talk of The Town but Talk of the Bangladesh community around the Globe.
Please read the news from bdnews24.com
Thanks
Shamim Chowdhury
| SEC tightens loan rules to curb liquidity |
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| | Tue, Oct 23rd, 2007 7:02 pm BdST |
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| Dhaka, Oct 23 (bdnews24.com) - The Securities and Exchange Commission Tuesday imposed a bar on merchant banks from granting loans with more than 1:1 ratio to clients, in a bid to rein in excess liquidity in the markets.
Merchant banks must comply with the directive from October 24, the SEC said.
"This measure is likely to restrain credit inflows from merchant banks. But we have yet to see what kind of impact it will have on the market and overall liquidity situation," SEC chairman Faruq Ahmad Siddiqi told bdnews24.com.
The regulator's move followed a steady surge in stock prices and daily turnover value caused by a huge amount of funds coming in from a number of sources ranging from banks to retail brokers.
Most investors were betting on a limited number of quality issues amid a dearth of supply in blue chips.
The SEC said merchant banks that wanted to sanction credit based on a single security (such as a share) would have to lend according to the following formula: closing price+net asset value/2.
If a client wanted to borrow money based on his deposits with the merchant bank, the ratio would be 1:1, or in other words, a borrower could borrow Tk 100 against a deposit of Tk 100, the SEC executive director Farhad Ahmad explained.
The new margin rule will bar merchant banks from extending credit to their own directors, executives, sponsor-shareholders and to the nearest relatives of employees.
The regulator said the new law would help check manipulation in the market and give merchant banks a uniform basis for lending.
"It will help merchant banks sanction credit under the same rule. We hope the rule will bring discipline in margin loan disbursements by ensuring a level playing field for all," Farhad Ahmed said.
The SEC executive said the rule advised merchant banks to consider a company's fundamentals when extending loans.
The SEC approved the rule in September after it detected huge irregularities with AB Bank's lending. The bank, one of the country's largest merchant banks, had extended credit beyond rational limits to relatives of employees and to some of its clients.
Stock market operators previously alleged that some merchant banks, in the absence of a set margin criteria, sanctioned loans to their clients irrationally, which in turn resulted in a surge in the prices of stocks and liquidity in the market.
Arif Khan, general manager of IDLC Finance, called the ratio set by the SEC 'prudent' considering the current market situation.
"It is very reasonable. I think it will help normalise the market," he said.
bdnews24.com/sp/ai/ad/1856 hours |
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