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Tanvir Islam, a banker, has invested Tk 17 lakh in the stock market since he started trading on the Dhaka Stock Exchange (DSE) a decade ago.

Besides, he borrowed Tk 5 lakh from a merchant bank and invested the fund in four well-performing stocks.

But he has not been able to trade any of his securities due to a thin presence of investors in the last one year, largely driven by a floor price. This means he has not been able to make any profit from the investments.

The merchant bank, however, is charging him interest on the loan.

In another blow, investors like Islam will see the interest rate go up by 2 to 3 percentage points from this month amid the high-interest rate regime in the banking sector after the central bank moved away from the 9 percent interest rate cap.

“I have to pay the additional interest from the pocket,” Islam said.

Islam is one of thousands of stock investors who have injected funds into the market by borrowing funds and they are now in troubled waters as they are being forced to pay interest from their pockets since their investment is bringing about little yields.

The Bangladesh Securities and Exchange Commission (BSEC) introduced the floor price in July last year to halt the freefall of the indexes amid global economic uncertainties brought on by the war between Russia and Ukraine.

The exact volume of margin loans in the stock market is hard to come by. A number of officials of the DSE and the BSEC put the figure at Tk 15,000 crore.

The interest rate on margin loans was 12 to 14 percent a couple months ago and it now stands at 15 to 17 percent. The rate is slightly lower for high-net-worth investors, according to a number of brokers and merchant bankers.

“Most of the market intermediaries and investors who are not involved in any price manipulation are now in a painful situation as their investments have remained stuck,” said Md Moniruzzaman, managing director of Prime Bank Securities.

“The investors who have taken margin loans are facing serious problems since their debt is rising whereas they are not being able to generate any income.”

He requested the BSEC to lift the floor price gradually so that the market could absorb the shock that may stem from the withdrawal of the artificial support measure rarely seen in other markets.

Al-Amin, an associate professor of the accounting and information systems department at the University of Dhaka, said margin loans are generally used to buy sound stocks but most of the good securities are stuck at the floor price.

“Under the circumstances, the rising interest rate will add to investors’ woes,” he said, adding that intermediaries normally cut interest rates during challenging times in a bid to give relief to investors.

Prof Al-Amin said he does not support any artificial mechanism and urged the regulator to lift the floor price gradually.

Though good companies are struggling to attract buyers, low-paid-up capital-based firms and junk stocks are witnessing an increased level of trading activity.

“The BSEC should eliminate price manipulation so that people’s confidence in the market gets a boost,” Prof Al-Amin said.

The current situation is hurting brokerage firms and merchant banks as well.

“Banks are not interested in extending any funds to brokerage firms or merchant banks that could be used as margin loans even if the rate is higher,” said Md Sayadur Rahman, president of the Bangladesh Merchant Bankers Association.

“As banks have increased the interest rate, intermediaries have had no other way but to raise the interest rate on margin loans.”

He suggested investors not invest by taking margin loans as it is an equity market.

 mainly due to the sector’s key indicators portraying a gloomy outlook.

Moreover, manipulation is a big draw for investors here. With a higher free float of banking stocks than what companies have on an average, there is little scope for manipulation.

As a result, stocks of eight banks have remained below their face-value of Tk 10 for the last couple of months amidst the scarcity of buyers.

The scenario is almost the same for stocks of eight non-bank financial institutions (NBFIs).

Once stocks of banks and NBFIs were the most lucrative in the market.

“The intrinsic value of the banks and NBFIs are below their par value, if we calculate, so their share price also remains low,” said Prof Mohammad Musa, a stock market analyst.

As there is a massive number of shares of the banks and NBFIs, the big investors do not target those for manipulation, said Prof Mohammad Musa, a stock market analyst.

Dean of the school of business and economics at United International University, Musa has a number of publications on the capital market in international platforms.

The intrinsic value is low for two reasons, one of which is for banks not being able to generate required cash flow for non-performing loans (NPLs) being too big, he said.

The other is that investors believe the banks and NBFIs are not adequately keeping provision, for which their income may not prevail for long, he added.

The banking sector’s NPLs stood at Tk 131,621 crore in March, up 16 per cent year-on-year, data from the Bangladesh Bank showed.

The NPLs accounted for 8.8 per cent of the banking sector’s total outstanding loans of Tk 14,96,346 crore.

The banking sector’s total risky loans amounted to Tk 377,922 crore at the end of last year, according to the Bangladesh Bank’s Financial Stability Report.

Prof Musa also blamed the huge free float of companies for the low share price. As there is a massive number of shares of the banks and NBFIs, the big investors do not target those for manipulation, he said.

General investors too do not buy these products because their tendency is to mainly rush for stocks undergoing manipulation, he said.

There are 35 banks listed with the stock exchanges. Of them, stocks of AB Bank Limited, First Security Islami Bank Limited, Global Islami Bank PLC, ICB Islamic Bank Limited, National Bank Limited, ONE Bank Limited, Standard Bank Ltd and Union Bank Limited are now less than Tk 10.

Those of another 12 are slightly above the face value.

There are a number of examples of stock prices of companies being high only due to them having a lower number of shares, Musa added.

Junk stocks of Jute Spinners Ltd were traded at Tk 334 yesterday. The company has 17 lakh shares.

Imam Button Industries Limited, Northern Jute Manufacturing Company Limited, Zeal Bangla Sugar Mills Limited and Shyampur Sugar Mills Limited saw their junk stocks trade at over Tk 100 though their par value is Tk 10.

They have shares ranging from 22 lakh to 70 lakh, the DSE data shows.

Banks and NBFIs have shares in the range of 70 crore to 160 crore.

Banks and NBFIs are more regulated than the average company, so investors should have had more confidence in them, said Shekh Mohammad Rashedul Hasan, managing director and CEO of UCB Asset Management.

However, analyses of the banking sector based on facts and figures are being published in newspapers almost every day and almost all of these are saying that the banks are going through a tough period, he said.

So, investors are finding it difficult to properly perceive the quality of the sector’s assets, he said.

Moreover, they are confused over whether the sector was losing strength or not. As a result, their participation in the sector is low, he said.

Among 23 NBFIs, stocks of Bangladesh Industrial Finance Company Limited, Fareast Finance & Investment Limited, FAS Finance & Investment Limited, First Finance Limited, International Leasing and Financial Services Limited, People’s Leasing and Financial Services Limited, Premier Leasing and Finance Limited and Union Capital Limited were under their face value.

A lack of confidence is plaguing the whole sector, for which some bank stocks are undervalued, added Hasan of UCB Asset Management.

No bank and are above Tk 60 while eight junk stocks, out of a total of 23, are being traded above the amount, the DSE data showed.

A top official of a listed bank, preferring anonymity, said some of the banks and NBFIs were feeling the pressure of the high NPLs but they abide by some corporate governance and were under regulations of the central bank.

Some of the banks and NBFIs are paying dividends too, so, in some cases, they are undervalued mainly due to most investors paying heed to rumours, he said.

And manipulating bank and NBFI stocks is tough due to them prevailing in high numbers, he clarified.

“If you see the stock market, many other listed companies do not even have any factories, or production has remained stopped for many years, (yet) these stocks are also traded above the share price of banks and NBFIs,” he said.

It means that most investors of the stock market rush for stocks undergoing manipulation, he added.

In the banking sector, stock prices of 28 percent or 16 banks and NBFIs are under the par value. In comparison, 4 percent or 12 companies in all other sectors combined are prevailing below the face value, the DSE data shows.

Among the 12 companies, 10 are in the textile sector. Most of the companies’ performances are not up to the mark and they have a huge number of shares.

Almost all major foreign currencies like the European Union’s euro, British pound sterling, Chinese renminbi, Japanese yen and Indian rupee are following in the footsteps of the US dollar in becoming stronger against the local currency.

The inter-bank selling rate for each US dollar stood at Tk 109.50 last Thursday, up from Tk 95 exactly a year back. For each euro, it was Tk 119.66, up from Tk 95.15 in the previous year.

Till July of this year, the Swiss franc made the highest appreciation of 28.25 percent year-on-year against the taka.

It was followed by the euro (25.54 percent), pound sterling (24.4 percent), Saudi riyal (15.96 percent), US dollar (15.83 percent), Australian dollar (13.82 percent), Indian rupee (11.86 percent), yen (11.59 percent) and renminbi (8.89 percent).

Till July of this year, the Swiss franc made the highest appreciation of 28.25 percent year-on-year against the taka.

Around 90 percent of foreign trade is conducted through the US dollar while the remaining 10 percent through other foreign currencies, bankers said.

Although the use of other foreign currencies continues to rise, the growth is not very high, they said.

The US dollar is considered to be the most sustainable foreign currency in foreign trade, Mirza Elias Uddin Ahmed, managing director and CEO of Jamuna Bank, told The Daily Star.

Unlike the US dollar, the values of other foreign currencies make very quick transitions against the local currency. That is why the US dollar is a more trusted currency, said the banker.

The gains made by the US dollar prompted other currencies to follow suit because the US dollar is considered as a reference for fixing other rates, he pointed out.

“We, however, are also conducting foreign trade through other currencies such as euro, pound and renminbi considering the cross-currency rate,” said Ahmed.

The taka has weakened against almost all the foreign currencies mainly due to supplies being slow against high demand, said Mohammad Ali, managing director and CEO of Pubali Bank.

“Our import payment is higher than the export earnings, which created the shortage of foreign currencies,” he said, adding, “We have to find new export markets to increase the foreign currency earnings.”

“Almost all the currencies were devalued against the US dollar, that is why our local currency has weakened against the foreign currencies,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

“It is very concerning that our local currency has weakened sharply due to skyrocketing inflation and interest rate in lending being low,” he said.

The taka will not be able to become stronger against the foreign currencies if inflation does not reduce, said the economist.

Inflation in Bangladesh stood at 9.69 percent in July, as per the Bangladesh Bureau of Statistics (BBS).

In May, it was at an 11-year high of 9.94 percent.

Demand for other foreign currencies is continuing to rise but the US dollar is still dominating foreign trade, said a senior central bank official.

The number of tradeable foreign currencies have also increased, he added.

Bangladesh Bank in September of last year said local banks would be able to maintain accounts in Chinese yuan or renminbi with their corresponding lenders or branches abroad so as to help local businesses settle transactions for foreign trade using the currency.

The BB official said the government issued a gazette notification in March 2014 declaring the Chinese yuan or renminbi as a convertible currency, a currency that can easily be exchanged for the currency of another country.

In July of this year, Bangladesh and India rolled out a cross-border trade settlement mechanism involving the rupee.

As per a government notification, local businesses are allowed to settle their foreign trade by using eight foreign currencies – the US dollar, Canadian dollar, Australian dollar, Singapore dollar, euro, British pound sterling, Swiss franc and Chinese yuan or renminbi.