Why is BSEC being sidelined in critical decisions?

The Bangladesh Bank has decided to merge five struggling Shariah-based banks into a single entity, after their vulnerabilities became starkly visible following the political transition after the ouster of the Awami League-led government last year.

It has also opted to liquidate nine non-bank financial institutions (NBFIs) that have been in distress for years.

These are bold and necessary decisions. However, they also expose an institutional gap.

Most of the 14 affected firms are publicly listed, meaning thousands of ordinary investors are directly exposed. Yet the central bank acted without consulting the Bangladesh Securities and Exchange Commission (BSEC), the very body responsible for safeguarding shareholder interests.

The Financial Institutions Division has set up an eight-member working committee to implement the bank merger, but not a single representative from the BSEC has been included. The listed firms themselves were not informed about the planned mergers or liquidations either, leaving them unable to make price-sensitive 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.

Unsurprisingly, share prices of the affected firms have collapsed to rock bottom, triggering a fresh confidence crisis. The scale of the decline may have been predictable, but its uniformity has unsettled the market.

For years, investors and analysts have urged regulators to coordinate with each other – and with the BSEC in particular – when decisions affect listed companies. 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, the central 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 is 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 here 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.

As of now, 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.

The actions raise crucial questions. 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 regulatory blind spot 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 distribution charges for Titas Gas without consultation, erasing more than Tk 3,000 crore in market value within months. In 2019, the telecom regulator branded Grameenphone a significant market power; in 2022, it went further, imposing a seven-month ban on new SIM sales. Neither decision involved the BSEC, yet both sent shockwaves through the market.

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?