Stocks in free fall again as banks face forced rate cut

Staff Correspondent | Published: 23:21, Feb 26,2020


Dhaka stocks went into free fall on Wednesday, extending the losing streak to the fifth session as investors continued selling shares amid the Bangladesh Bank’s forced implementation of 9 per cent lending rate for banks’ loan products except credit card.

The rate cut move cancelled out the positive impact of the central bank’s recent market stabilising efforts, market operators said.

DSEX, the key index of the Dhaka Stock Exchange, lost 1.55 per cent, or 72 points, to close at 4,549.11 points on Wednesday.

The DSEX lost 209 points in the last five sessions.

After a brief gain at the beginning of Wednesday’s session, the key index started falling and descended more firmly as the time passed to end the session deep into the negative zone as jittery investors kept selling shares on an apprehension that the forced implementation of interest rate would impact negatively on the country’s banking sector, market operators said.

The central bank on Monday issued a circular, putting cap on lending rate for all kinds of loans except the credit card at 9 per cent from April 1.

In the last five negative sessions, the index initially fell due to the profit-taking move by investors and poor earnings disclosures by a number of large capitalised companies including British American Tobacco and IDLC Finance, but the Grameenphone’s audit issue and BB’s circular on interest rate fuelled the sell-offs in the last couple of days.

The market had rallied strongly since mid-January, lifting the DSEX by 722 points before the current plunge, on the government’s move to stabilise the market.

The BB on February 10, as part of the government initiative, allowed each bank to borrow up to Tk 200 crore from the central on easy term to invest in the capital market.

After showing some signs of revival ridding on the BB’s special fund announcement, the market was sinking again as investors feared that the forced implementation of interest rate might have a negative impact on the economy especially the banking sector.

The announcement of special funds failed to hold the gain as the issue of interest rate cut has emerged.

Policy Research Institute executive director and BRAC Bank chairman Ahsan H Mansur told New Age that the profitability of banks would decline due to the BB move, so would their dividend giving capacity and that would directly affect the capital market.

Many banks have already been struggling to generate optimum profits, and the interest rate cut would be a big blow to them, Ahsan said.

Depositors might be reluctant to keep money in the banking system that would trim the lending growth, he said.

Ahsan also said that banks could be shy of providing loans to the SME sector, which ultimately would affect the economy.

Share prices of bank and non-bank financial institution sectors plunged by 2.7 per cent and 2.2 per cent respectively.

Out of 30 traded bank scrips, 23 declined, just three advanced and four remained unchanged while out of the traded 22 NBFIs, prices of 18 declined, just one advanced and three remained unchanged.

EBL Securities in its daily market commentary said that the market started taking a hit from the early session and registered a steep fall at the end as investors had grieved on the probable impact of 9 per cent lending rate on the economy.

Banks’ reluctance to form special fund for stock market investment even after two weeks of the BB’s declaration seemed to put investors in a doubt about a soon-to-be market recovery, it said.

‘In the events, Grameenphone’s tussle with the regulator wiped out the investors’ confidence in the market giant, which drove down the market further,’ it said.

Share prices of GP continued falling as the Appellate Division ordered GP to pay additional Tk 1,000 crore in audit claim in three months to the Bangladesh Telecommunication Regulatory Commission in three months after the operator paid Tk 1,000 crore to the regulator.

Market operators said investors were worried about how GP would adjust the amount in the income statements.

Apart from the financial sectors, share prices of telecommunication, energy and engineering sectors plunged by 1.4 per cent, 1.1 per cent and 0.9 per cent respectively.

The turnover on the DSE inched down to Tk 627.34 crore on Wednesday from Tk 629.68 crore in the previous trading session.

Out of the 356 scrips traded on Wednesday, 226 declined, 84 advanced and 46 remained unchanged.

DSE blue-chip index DS30 plummeted by 2.14 per cent, or 33.26 points, to close at 1,517.7 points.

Shariah index DSES lost 0.89 per cent, or 9.61 points, to end at 1,060.31 points.

Grameenphone led the turnover chart with shares worth Tk 16.61 crore changing hands on the day.

Indo-Bangla Pharmaceuticals, VFS Thread Dyeing, BRAC Bank, National Polymer, RD Food, LafargeHolcim Bangladesh, Orion Pharmaceuticals, Square Pharmaceuticals and Golden Harvest Agro Industries were the other turnover leaders.

Central Pharmaceuticals gained the most on the day with a 9.56-per cent increase in its share prices while BRAC Bank fared the worst, shedding 9.53 per cent.

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