Listed banks may be penalised for profit disclosure sans provisioning
M Shamsur Rahman
Private commercial banks (PCBs) announcing half yearly operating profit without maintaining provisions against bad or doubtful debts are likely to be penalised by the Securities and Exchange Commission (SEC).SEC officials in a meeting with the Bangladesh Bank yesterday pointed out that a number of PCBs listed with the stock markets resorted to such practice of announcing half-yearly profit without calculating the required provisions against bad loans. "Disclosing such profits creates a demand for such banks as the investors are lured to purchase such stocks that appear to be lucrative," a top SEC official told the meeting which was attended by Bangladesh Bank Governor Fakhruddin Ahmed and three deputy governors. The official said such announcements are price sensitive information that mislead the general investors. "And dissemination of such false price sensitive information is a clear violation of securities law and tantamount to market manipulation." He said an investor purchasing shares based on such disclosures find profit to go down in the final audited accounts. In the final accounts the banks maintain the required provisioning against such bad loans. Following the SEC submission, the central bank governor said the SEC could get in the process of taking actions against such offenders. Another SEC official said such practice of disclosing operating profit began last year and many investors complained of such misleading statements from banks. Following the complaints, the SEC last year warned all the listed banks not to disseminate such sensitive information. "But this year we saw few banks to disclose such figures," the official said. "This time we may slap penalty on these banks." During the meeting, the central bank officials sought relaxation of certain securities laws on some debt instruments, likely to be launched in the market under the financial instrument development programme (FIDP) of the central bank. The Bangladesh Bank officials requested the SEC to exempt the debt instruments from the laws relating to mandatory underwriting, mandatory credit rating and prior permission from the SEC for keeping their cost low. The SEC requested the Bangladesh Bank to send a proposal in this regard and assured it of cooperation in facilitating such financial instruments.
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