THE stock market has experienced growing volatility following the fall of the Awami League regime amidst the student mass uprising. However, the crisis roots lie in past corruption and irregularities. When Dr Muhammad Yunus took on a leadership role in the interim government, his reputation as a Nobel laureate initially restored hope among investors, pushing the stock index up by nearly 800 points.
Unfortunately, confidence quickly waned due to appointment issues involving the Bangladesh Securities and Exchange Commission, the Investment Corporation of Bangladesh, and the Dhaka Stock Exchange. Investors questioned the selection process, feeling that industry insiders were overlooked. Market experts believe these appointments failed to address the needs of a sensitive market, dependent on skilled management to sustain investor trust. As a result, the index has plunged back to earlier levels, and the market struggles to regain momentum.
This article explores the key challenges facing the stock market and proposes reforms, drawing lessons from developed markets to stabilise financial sectors in crisis.
Addressing margin loan issues
ONE of the long-standing problems plaguing Bangladesh’s stock market is the misuse of margin loans. Approximately Tk 12,000 crore is trapped in these distressed loans, significantly hampering liquidity. Both brokerage houses and merchant banks are suffering from accumulated non-performing loans, which were initially issued at high interest rates but failed to generate returns.
Proposed solution: The government and the Bangladesh Securities and Exchange Commission should consolidate all margin loans and interests into a blocked account for 5–10 years to stop the accumulation of further interest.
Interest may be partially or fully waived through government tax incentives or adjustments. The foregone interest can be offset by brokerage firms and merchant banks through tax adjustments over the next 5–10 years.
A slightly higher special tax rate may apply to trades receiving the benefit, allowing the government to recover revenue. Circulating the Tk 12,000 crore in the market will generate tax income and restore investor confidence.
Forced sales of stocks should be suspended to encourage gradual market re-entry, boosting trading activity and tax revenues for the government, banks, and brokers.
Developed markets like the US and Europe have used debt restructuring and loan moratoriums to stabilise financial sectors during crises.
Supply and demand imbalance
THE unchecked introduction of low-quality (‘junk’) stocks into the secondary market has diluted liquidity and trapped investor funds. In many cases, IPOs have drained market funds without yielding returns, further eroding investor trust.
Proposed solution: The Bangladesh Securities and Exchange Commission must halt IPO approvals until the index stabilises at a minimum of 8,000 points to preserve liquidity.
In developed markets, regulators restrict the introduction of new securities during turbulent times to prevent market fragmentation, a strategy Bangladesh must adopt.
Cash support and policy intervention
WHILE the government has provided financial aid to the banking and other sectors, the stock market has been overlooked. In comparison, countries like the United States and the United Kingdom introduced bailout packages during financial crises to stabilise their stock markets.
Proposed solution: Bangladesh Bank can offer low-interest loans to distressed investors and brokerage houses, backed by securities.
The Bangladesh Securities and Exchange Commission should introduce long-term stabilisation packages with possible funding from international organisations like the World Bank, the Asian Development Bank, or Chinese stakeholders in the Dhaka Stock Exchange.
Direct financial intervention through soft loans can prevent market collapse and boost investor confidence.
Enhancing governance and appointing experts
THE BSEC’s leadership plays a pivotal role in market stability. Academic expertise alone is insufficient to address the complexities of stock markets; practical experience is essential. Developed markets often appoint industry veterans to regulatory bodies for effective oversight.
Proposed Solution: Stakeholder representation in the BSEC is essential. One commissioner should be nominated by the Listed Companies Association, one by the DSE, and one by the BO Account Owners Association to ensure experienced market professionals are included.
Each regulatory body such as the Securities and Exchange Commission, the Dhaka Stock Exchange and the Investment Corporation of Bangladesh should appoint a spokesperson to provide consistent communication, as mixed messages can destabilise markets.
Reducing tax burden
DOUBLE taxation on listed companies and investors discourages market participation. In developed markets, capital gains and dividends are often taxed at reduced rates or exempted to promote investments.
Proposed solution: The government should eliminate double taxation on listed companies and investors’ capital gains and dividends.
Taxes on securities trading should be treated as final settlements to provide certainty and relief for investors.
Strengthening market surveillance, regulation
REGULATORS must act proactively to prevent market manipulation and irregularities, rather than reacting after the damage is done. In developed markets, advanced surveillance systems detect anomalies in trading patterns.
Proposed solution: The BSEC should implement real-time monitoring systems to block manipulative trading activities and foster a fair trading environment that attracts foreign investors.
Creating incentives for foreign, expatriate investment
A ROBUST stock market is a key indicator of economic health, attracting foreign investment. However, the volatility of Bangladesh’s market has discouraged expatriate and foreign investors.
Proposed solution: The BSEC should introduce tax-free investment windows for expatriates and foreign investors for a limited time.
The government could explore offering long-term bonds linked to the stock market to attract foreign inflows.
Strategic government intervention and investment packages
BANGLADESH’S stock market needs immediate support to regain stability. The government should consider allocating Tk. 20,000 crore in soft loans for market stabilisation, sourced from the central bank or international development partners.
Proposed solution: The fund can support margin loans and fresh investments to stabilise the market.
Merchant banks and brokerage houses should manage the loans, ensuring equitable distribution among affected investors. This will stimulate market growth, increase trading cycles, and enhance government revenue through commissions and taxes.
Conclusion
THE stock market is at a critical juncture. While investors initially trusted the new government, hoping for stability under Dr Yunus’s leadership, recent issues have shattered market confidence. To ensure recovery, the government and regulators must act swiftly with well-planned reforms.
Drawing on lessons from developed economies, Bangladesh must focus on policy support, financial intervention, tax reforms, and effective governance. These measures will help the stock market regain stability, rebuild investor trust, and contribute to sustainable economic growth.
The time for action is now. Strategic decisions are essential to ensure the stock market becomes a pillar of Bangladesh’s economy, attracting both local and international investment.
KBM Moin Uddin Chisty is vice-chairman of Islamic Finance and Investment limited and president of Victoria University of Bangladesh.
