Merchant Banking in Bangladesh

Merchant banks were allowed to operate with the hope of playing a meaningful role in salvaging the country's limping stock market, by generating fresh funds, following the 1996 stock market crash. So far, a total of 31 companies received merchant banking licenses from the Securities and Exchange Commission. The registered merchant banks are: Janata Bank Limited, BRAC Bank Limited, City Bank Limited, Premier Bank Limited, Mutual Trust Bank Limited, Industrial Development Leasing Company of Bangladesh Ltd, Uttara Finance and Investment Limited, Banco Trans World (Bangladesh) Limited, Fidelity Assets and Securities Company Ltd., N DB Capital Ltd., Bay Leasing and Investment Limited, Alliance Financial Services Ltd. Business and Management Co. Ltd., Swadesh Investment Management Limited, LankaBangla Finance Limited, Grameen Capital Management Limited, South Asia Capital Ltd., Prime Finance &Investment Ltd., EC Securities Ltd., Mercantile Securities Limited, GSP Finance Company (Bangladesh) Ltd., Bangladesh Mutual Securities Ltd., BRAC EPL Investment Ltd, Prime Bank Limited, Arab Bangladesh Bank Ltd., ICB Capital Management Ltd., Export Import Bank of Bangladesh Ltd.(EXIM Bank), Union Capital Limited , AAA Consultants and Financial Advisers, Citigroup Global Markets Bangladesh Private Limited, Trust Bank Ltd, Southeast Bank Ltd, Standard Bank Ltd, Sonali Bank Limited and Agrani Bank Limited.

Of them, a total of 29 companies received merchant banking licenses from the commission between January 1998 and April 2002. The Citigroup Global Markets Bangladesh Private obtained the license in the year of 2007 and the Trust Bank in the year of 2008. Six more FIs are going to be approved by the SEC.

The SEC on September 7, 2008 cancelled the merchant banking license of the Equity Valuation Research and Distribution Ltd. The Securities and Exchange Commission on October, 2008 cancelled merchant banking licenses of the First Securities Services Ltd and the Raspit Securities and Management Limited with immediate effect since they remained inactive for years together. The First Securities Services was given license to act as issue manager while the Raspit Securities and Management as full-fledged merchant bank, which was allowed to perform as issue and portfolio manager as well as underwriter for clients. In the year of 2009, of the then 28 merchant banks, 23 had full-fledged Merchant banking license, while four had only issue management license and one had only portfolio management license. The central bank of Bangladesh asked the commercial banks to run their merchant banking business through separately formed subsidiary companies, officials and bankers. Under those new regulations, the banks had to convert their existing merchant banking wing or department into a separate subsidiary company by January31, 2010.It helped to ensure transparency of the merchant banking business.

Recently, securities regulators gave its go-ahead to six more financial institutions (FIs) to operate merchant banking. Because, analysts questioned their expertise and financial base. The Securities and Exchange Commission (SEC) also approved rights offer of Bay Leasing and Investment Ltd. The six financial institutions are Jamuna Bank, Mutual Trust Bank Ltd, The City Bank, Summit Group's Cosmopolitan Traders Private Ltd, Green Delta Insurance and Alpha Capital Management Ltd, a unit of Progressive Life Insurance.

According to the SEC officials, the approval will bring the total number of merchant banking at 37. By giving nod to the six FIs to operate as merchant banks, the SEC has increased maximum limit of the merchant banking operation in the stock market to 50 from 35. But, although 31 merchant banks are operating, only a few (only some) are active while the performance of the rest is "far from being satisfactory." The merchant banks should focus on forming their own portfolios in making the market sustainable; an analyst saw no strong case for the SEC motive, saying it would be of no use unless the companies have professionalism and strong financial base.

So far, the commission has scrapped six licenses of merchant banks including First Securities Services Ltd, Prime Securities and Financial Services Ltd, and Mercantile Securities Ltd.

To register as a merchant banker, SEC asks some requirements as below:

Issue Manager	At least 1 (one) proposal for public issue be submitted to the Commission in each calendar year
Portfolio Manager	In addition to own portfolio, at least 5(five) new portfolio accounts be opened in each calendar year
Merchant Banker	1 (one) issue management, 2 (two) underwriting, 5(five) new portfolio accounts be opened in each calendar year

Besides these, merchant bankers need a pre-condition of capital of TK 100 million for the registration of full-fledged merchant banker. Tk 10 million of capital is needed of a company is registered for issue management and underwriting or portfolio management only. For issue management, it is needed 2.5 million only.