Merchant bankers urge SEC to review loan calculation method

August 31, 2010

Leaders of the Bangladesh Merchant Bankers’ Association on Monday requested the Securities and Exchange Commission to review its decision to impose a net asset value based calculation system for margin loan.
They urged the commission to allow market price based margin loan, even by lowering ratio to 1:0.5 from the earlier ratio of 1:1.
‘It is not easy to calculate the margin loan taking into consideration of price of an issue and it’s NAV on daily basis. We don’t have such software,’ said Arifur Rahman, president of the association at a press conference at its office.
The SEC on August 24 asked brokerage houses and merchant banks to provide investors with loans based on net asset value and current market price instead of the market price-based margin loan ratio of 1:1.
As per the new loan disbursement system, the current value of any share price would be added with NAV and the sum would be divided by two.
A SEC meeting with brokers and merchant bankers on Sunday failed to reach a consensus on the new system. The commission insisted that the new system will be applicable and the investors would have to adjust their loans as per the new system by September 30.
‘The SEC, instead of going for NAV-based system, can lower the margin loan ratio to 1:0.5 from 1:1 to reduce credit flow in the market. It will be easy for us to calculate the loans,’ Arif told reporters.
‘It will be hard for us o follow the new loan disbursement system and adjust loans of investors by September 30 as we lack relevant software,’ said Akter H Sannamat, managing director of merchant bank Prime Finance and Investment.
Arif claimed that NAV-based margin lone calculation method would not control the current inflow of funds in the overheated market. ‘If we look at the top 20 turnover leaders, we will find that investors do not get loans for shares for eight of the leaders as their price earning ratios are well above the limit. This shows that issues can be over-priced even if the investors do not get loans for those shares,’ he said.

Courtesy of NewAge

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