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Tuesday, March 21, 2006

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Cos seeking loans from banks need to invest a part in stock market
Siddique Islam
3/21/2006
 

          A high powered committee is now working to set a debt-equity ratio guideline for companies, seeking loans from commercial banks, to compel them to invest a portion of it in the share market.
The second meeting of the six-member committee was held Monday at the central bank with its convener and Executive Director of the Bangladesh Bank (BB) Murshid Kuli Khan in the chair.
Meanwhile, the Association of Bankers, Bangladesh (ABB) submitted its proposal to the committee to consider debt-equity ratio at around 60:40 for the guideline, sources said.
The committee was formed in line with the decision of an inter-ministerial meeting held in August 31, 2005 with Finance and Planning Minister M Saifur Rahman in the chair.
The meeting decided that the central bank and the Securities and Exchange Commission (SEC), if required, could fix the debt-equity ratio for generating funds from both the banks as well as the capital market.
Sources, however, said the committee will fix the debt-equity ratio for companies considering different indicators like categories of companies, maturity and capital structure of the companies.
"We are trying to submit our report to the BB governor by March 31 for consideration," Murshid Kuli Khan told the FE Monday.
However, the ABB also suggested to the committee to keep provisions for credit rating to asses the financial performances of the companies concerned before going to initial public offerings (IPOs).
Currently, many companies are taking loans that are several times higher than their paid-up capital, sources in the banking sector confirmed.
Some companies pay less attention to proper financial management because of shortage of capital and they could not ensure the maximum use of their loans taken from the country's commercial banks and development finance intuitions (DFIs).
Besides, many companies faced acute crisis of working capital due to compulsory payment of interest on credit and capital in case of their failure to do business. As a result, they became sick.
"If the highest ceiling of credit is fixed in accordance with the capital ratio, the companies will be encouraged to collect funds from the share markets that would reduce their risk of default loans," a senior banker observed.

 

 
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