Bangladesh unveils steps to help stock market

DHAKA (Reuters): Bangladesh on Wednesday unveiled moves to shore up the plunging stock market, including allowing banks to invest unlimited funds and waiving tax on gains from share trading, after a series of price crashes pushed thousands of small investors to the verge of bankruptcy.

The measures were announced by the Securities and Exchange Commission (SEC), the market regulator, a week after Prime Minister Sheikh Hasina called for urgent action to save the mostly small investors and restore confidence.

The initiative came after the country’s prime bourse, the Dhaka stock exchange, shed more than 45 percent this year --- its worst performance since 1997 when it lost 67 percent.

As the index sharply fell in recent months, angry shareholders took to the streets and held violent protests alleging poor market control, foulplay and manipulation by some companies to fleece small investors to make hefty gains.

“With immediate effect, we will withdraw tax on profit on investment by foreign institutions and non-resident Bangladeshis and will also relax the limit on investment by the banks,” SEC chairman M. Khairul Hossain told a news conference.

Previously the banks were allowed to invest up to 10 percent of their paid-up capital in the stock market while foreign and non-resident investors were paying 10 percent tax on their profit.

About 7.4 million Bangladeshi expatriates send home $11 billion annually, which the SEC says can be a potential source to underpin the stock market.

“Henceforth the banks will be allowed to inject as much (money) they can in the capital market,” Hossain said.

Earlier, the country’s supreme tax authority, the National Board of Revenue (NBR), said it would not question the source of untaxed cash if it is invested in the share market.

Many of the country’s more than three million investors -- the majority of them small traders -- complained to the SEC and the finance ministry about having lost their capital and turned into paupers.

“The measure (announced on Wednesday) will attract foreign investment and push the flow of foreign funds up,” the SEC chairman said.

The banks have now agreed to invest more fund in the capital market, Hossain said, adding that the foreign brokerage firms will be allowed to send back quickly the commission they earned from investment by the foreigners.

“This will encourage foreign portfolio managers to invest in Bangladesh’s capital market.”

Insurance companies have agreed to invest their “investable funds” in stocks, Hossain said, while the SEC made it mandatory for sponsors and directors of the listed companies to hold at least 30 percent of their shares to stabilise the market. At present there is no such limit.