The Dhaka Stock Exchange (DSE) has been witnessing drops in its stocks over the past few days, although there was a small respite at the start of the week owing to Bangladesh Bank’s (BB) decision to allow banks a further 6 months to adjust their advance-deposit ratio (ADR) from March 31st.
DSEX, the key index of the DSE fell on Monday by 19.24 points after positive gains at the start of the week as investors went for selling shares, bringing price drops to almost two-thirds of the traded shares in the market. Although BB had taken the initiative of deferring its deadline on the ADR of banks, it wasn’t enough to bring a change in the outlook of the stock market.
The daily average turnover of the DSE have also declined further by more than Tk 595.98 crore over the last week from Tk 728.35 crore in the previous week which is a drop of more than 18 percent. The continuous selling of shares from certain institutional investors resulted in fall in share prices of more than two-thirds of the traded stocks, resulting in the fall of the market indexes.
One of the main issues attributing to the liquidity crunch in the market is that the deposits into banks in the country have been reducing as of late, as more and more savers and institutional funds are being used to buy into government savings tools. This is down to the significant difference in the interest rates in banks compared to the savings certificates offered in the market by the government, with government savings instruments having interest rates between 11.04 percent to 11.76 percent recently, compared to the interest rates of bank deposits lying between 5 percent and 6 percent.
Government savings instruments have continued to perform very strongly recently, with the total sales of savings certificates hitting a monthly high in January and amounting to Tk. 6000 crore. According to the BB, the sales in January bettered the previous highest total of Tk. 5400 crore in June, 2017. Many experts attribute this strong increase in such investments mainly due to bringing about changes in saving certificates’ interest rates, creation of a database for preventing misuse and making Taxpayers’ Identification Number (TIN) mandatory for purchases of the tools in the future. The government had recently launched an online database for its savings instruments and this has increased institutional and personal confidence in its certificates. To add to this, the government has significantly increased its borrowing from the market in order to fund its ongoing developmental and other activities.
As less liquidity is available to the banks and with the struggles of the banks in reducing their non-performing loans (NPL) along with the ongoing reduction in deposits, the whole banking sector is experiencing a difficult time as of late. To make matters worse, 3 news banking institutions have been added to the already burgeoning sector recently, which will definitely not help the market.
As the financial sector continues to struggle for funds, the capital market has been experiencing a direct effect.
Many experts are predicting that the stock markets and especially the shares of the banking institutions shall continue to dip in the coming weeks, as the liquidity crunch continues to have its negative effect on the market. Without any intervention from the central bank, it shall be difficult for the whole sector to bring about any noticeable change.