Margin loan limit rise to help index avoid correction: Analysts

The credit facilities extended by the Bangladesh Securities and Exchange Commission (BSEC) will help the index avoid correction, analysts say.

Taking the present market situation into account, the general investors will be more benefited from the move, they said.

However, they advised the BSEC to be vigilant so that no one can take unethical advantage of it.

Under the newly revised limit, a lender can offer a margin loan at a maximum ratio of 1:0.80 if the DSE benchmark index, DSEX, remains below 8,000 points, while the margin loan ratio will be 1:0.50 if the DSEX remains above 8,000 points, said a BSEC directive on Friday.

The move came following the benchmark DSEX index of the Dhaka Stock Exchange neared around 6,700 points on Thursday, the final session of the past week.

Former Faruq Ahmad Siddiqi said that the BSEC increased the maximum margin loan ceiling so that the Bangladesh Bank’s recent directive on the bank’s exposure on stocks brought no impact to the market.

“The new margin loan ratio will enhance the purchasing capacity of the retail investors,” he said.

Capital market expert Prof Abu Ahmed said that the BSEC increased the credit facilities to the investors soon after the Bangladesh Bank asked all banks to submit all investment information about the stock market daily.

“It created confusion among the investors.”

However, the expert said that the BSEC should strictly monitor the situation so that no one could take advantage of it.

A merchant banker, who did not want to be named, told the Business Insider Bangladesh that if the BSEC’s previous guidelines on margin loan continued, the market would face selling pressure. Now, the market will get a boost as the investor buying capacity increases, he said.