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New exposure for banks: Non-listed securities excluded from bank investment portfolios

  • Published at 10:24 pm May 16th, 2019
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Bangladesh Bank logo Mehedi Hasan/ Dhaka Tribune

It would subsequently improve investor confidence

Non-listed companies have been excluded from bank exposure calculation, said Bangladesh Bank yesterday in a circular

Currently, banks are allowed to invest as much as 25% of their paid-up capital in shares, both listed and non-listed.

The decision will help ease the ongoing liquidity crunch in the capital markets as it will release a substantial amount of funds in the stock market. It would subsequently improve the confidence of investors, stakeholders said. 

The circular said that bank investments in non-listed securities (Equity Share, Non-convertible Cumulative Preference Share, Non-convertible Bond, Debenture, Open-end Mutual Fund) will be excluded from their total investment portfolio (solo and consolidated) in the capital market. 

The decision will be effective immediately, the circular added.

The Banking Companies Act 1991, which was amended in 2013, has limited a bank’s stock market exposure to 25% of its capital. Capital includes paid-up capital, share premiums, statutory reserves, and retained earnings.

The central bank has taken this decision as the investments of banks and their subsidiary companies in non-listed companies are not traded in the capital markets, and hence not logical to calculate as capital market exposure.

DSE Director Rakibur Rahman said the decision would help ease the ongoing liquidity crunch in the capital market as it would release a substantial amount of funds from capital market exposure calculation.

It would subsequently improve investor confidence, he added. 

Earlier, Bangladesh Bank governor assured Bangladesh Securities and Exchange Commission (BSEC) that the non-listed companies would be excluded from the exposure criteria of banks.

The meeting discussed capital market exposure for banks and financial institutions. The exposure is now calculated on the basis of market prices of stocks, which regulators have been pressing the central bank to calculate on the basis of cost price.

BSEC also sought exclusion of bank investments in bonds, debentures, preferential shares, and non-listed mutual funds, as well as funds not traded in the stock market, from capital market exposure calculations.