Bangladesh Bank has decided to merge five listed Shariah-based banks into a single entity, as these institutions have been struggling, especially after their real condition came to light following the fall of the Sheikh Hasina government last year.
The central bank has also decided to liquidate nine non-bank financial institutions (NBFIs) that have been in distress for years. These are bold and necessary decisions.
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However, most of the 14 affected firms are listed on the stock market, meaning thousands of general investors are directly involved. Yet Bangladesh Bank did not consult the Bangladesh Securities and Exchange Commission (BSEC) before making such far-reaching decisions.
Notably, not a single member from the BSEC was included in the eight-member working committee formed by the Financial Institutions Division of the finance ministry to implement the bank merger.
The listed firms themselves were not informed about the planned mergers or liquidations, meaning they could not make disclosures to their investors through the stock exchanges.
As a result, thousands of small investors, who put their hard-earned savings into these banks and financial institutions, remain in the dark about the future of their investments. This uncertainty has already pushed the share prices of these institutions to rock bottom, triggering a severe confidence crisis in the market.
The fall in stock prices was expected, but their uniformity was not.
For years, stock investors and analysts have urged regulatory bodies to consult among themselves, and at the very least with the BSEC, before making decisions regarding listed firms.
The BSEC’s involvement is crucial in decisions that affect the earnings, sustainability, or very existence of listed companies. Without its voice, who will protect the interests of small investors?
So far, Bangladesh Bank has largely excluded the BSEC from critical decisions such as mergers and liquidations. The only notable exception was some cooperation between the two regulators on bond-related initiatives, which was commendable.
Similar consultations were urgently needed in the case of the ongoing bank merger and NBFI liquidation. Such dialogue could have reassured the market by signalling that investor interests were being considered.
Other regulators also appear unwilling to recognise that the stock market is highly sensitive, where any decision affecting a listed company can sharply move share prices and investor confidence.
The finance ministry could play a crucial role by directing all regulators to consult with the BSEC before taking steps that affect listed companies.
If listed firms are bound to disclose price-sensitive information, then regulators should also be obliged to engage in consultations and ensure timely disclosures.
So far, no official disclosures on the merger of the five banks and the liquidation of the nine NBFIs have appeared on the Dhaka Stock Exchange (DSE) platform.
Only after newspapers reported the developments did the DSE inquire about them. Some firms responded that they were trying to halt the process, while others said they had not been informed by the central bank.
If listed firms are legally required to disclose such matters, why are regulators not doing the same? Why are they speaking to the media instead of officially informing lenders and investors?
This pattern is not new; it reflects a long-standing legacy of regulators bypassing the BSEC. The stock market has suffered repeated blows due to this neglect.
In 2015, the Bangladesh Energy Regulatory Commission slashed the distribution charges of Titas Gas without consulting the BSEC. The decision wiped out more than Tk 3,000 crore of Titas’s market value within five months.
In 2019, the Bangladesh Telecommunication Regulatory Commission declared Grameenphone a significant market power. In 2022, it again banned the operator from selling SIMs, a restriction that lasted seven months. None of these decisions involved consultation with the BSEC, yet their impact on the stock market was massive.
Despite many reforms in the financial sector, one crucial reform is still missing: a binding mechanism that ensures all regulators consult the BSEC before making decisions that could affect the earnings or survival of listed companies.
Until that happens, investors will continue to ask: How long will the BSEC be kept out of the decision-making process for listed firms?