BSEC to Drop PB Ratio Rule After Investor Backlash, Eases Other Margin Loan Conditions

The Bangladesh Securities and Exchange Commission (BSEC) is set to drop a controversial proposal that would have used the "Price to Book" (PB) ratio instead of the usual Price-to-Earnings (PE) ratio to decide margin loan eligibility for banks, insurers and non-bank financial institutions. The plan, part of a draft revision to the BSEC (Margin) Rules, 2025 that triggered sharp investor backlash and pushed the market lower after it was opened for public feedback on July 19.

Under the draft, banks and NBFIs with a PB ratio above three and insurers above one, would have lost margin loan eligibility. Facing strong criticism, BSEC sources say the commission will likely scrap the rule for banks, NBFIs and general insurers, though it may test the rule on life insurance companies alone.

Dhaka University accounting professor Md. Al-Amin said the PB ratio proposal caused needless investor anxiety and retaining the existing PE ratio system would be the safer, timelier choice.

The commission is also considering several other relaxations. The PE ratio ceiling for margin eligibility outside banking, insurance and NBFI sectors may rise from 30 to 40 bringing more companies into margin financing. Margin call thresholds may shift too: calls could trigger when investor equity falls below 70% instead of the current 75% with a written notice required below 50% equity and forced share sales allowed without notice only below 25%. The brokerage industry's CEO Forum has pushed for an even lower 40% forced-sale threshold.

Lending capacity for margin providers stockbrokers, merchant banks, and portfolio managers may increase from three times to five times their capital. The minimum securities requirement in a client's BO account for margin loans may also drop from Tk 5 lakh to Tk 3 lakh. A uniform 1:1 margin-to-equity ratio is proposed across the board with replacing the current mixed ratios.

Margin loan access may also expand to more "B" category shares, though weaker "Z" "N" and "G" category stocks, SME shares and ATB/OTC-listed securities will remain excluded.

Analysts caution that while these changes may boost short-term investor sentiment, they carry long-term risks. Loosening PE limits and expanding margin eligibility to weaker shares could expose investors to steeper losses, and raising a single lender's exposure limit per share from 20% to 30% of total funds could concentrate risk further.

BSEC spokesperson Abul Kalam said he could not confirm the proposal's final status but assured a "market-friendly" decision. BSEC Chairman Masud Khan acknowledged that the PB ratio concept was widely misunderstood and calling it standard international practice but stressed no final decision has been made. "If the market doesn't understand something, it can backfire when implemented" Khan said, adding the commission would review all contentious provisions before finalizing the rules and sending them to the finance ministry for gazette notification.