Several merchant banks in Bangladesh are facing capital shortfalls as prolonged weakness in the stock market has reduced business and income, prompting the Bangladesh Merchant Bankers Association (BMBA) to seek time and regulatory support to recover.

In a recent letter to the Bangladesh Securities and Exchange Commission (BSEC) chairman, the BMBA proposed introducing a conditional, time-bound and milestone-based capital recovery framework for merchant banks whose net assets have fallen below the regulatory threshold due to prolonged market weakness.

BMBA Secretary General and MTB Capital CEO Sumit Poddar said merchant banks’ fee-based income had nearly dried up due to the lack of approvals for new IPOs and bonds since August 5, 2024. At the same time, companies have continued to bear costs related to employees, technology, compliance and operations.

Under the Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996, merchant banks are required to maintain net assets equivalent to at least 50% of their paid-up capital. The association said prolonged market weakness following the pandemic and limited business activity had eroded the capital base of several institutions.

Declining IPO, bond and other securities issuance has reduced income from underwriting, portfolio management and advisory services, while continued operating expenses have further weakened their financial positions.

The BMBA proposed allowing eligible institutions a reasonable period to restore their net assets. However, it said the facility should be conditional. Merchant banks would have to submit board-approved capital and business recovery plans containing measurable targets and provide regular progress reports to the BSEC.

The association also urged the regulator to assess merchant banks individually based on their capital position, business activities, pending applications, viable mandates and past performance rather than applying a uniform approach to all institutions.

It further requested that capital shortages should not unnecessarily restrict income-generating activities such as issue management, loan arrangements, SME listings and advisory services. According to the BMBA, allowing such businesses to continue would help merchant banks generate income and rebuild their capital, while stronger safeguards and transaction-based monitoring could be introduced to manage risks.