Bangladesh Bank has relaxed banks’ capital market exposure and said the investment in banks’ subsidiary companies will be excluded from their capital market exposure.
“The capital invested by the banks in their subsidiary companies will not be included into their capital market exposure,” said Bangladesh Bank in a circular issued yesterday. The decision will come into effect from next month.
The central bank has taken the decision so that banks can comply with the BB’s order on reducing their investment into stocks by scheduled period, said the circular.
According to the existing rules, banks are supposed to lower their exposure by July 2016 to 25% of their capital.
Though the time is short for reducing the exposure, some banks still have over exposure. In this situation, the central bank relaxed the rules in response to some stakeholders demand. The capital market stakeholders, including merchant banks and stockbrokers, have long been requesting the government to relax the bank’s stock market investment rules.
“As it is difficult to bring changes to the act, Bangladesh Bank offered an alternative device paving the way to adjust the exposure,” said a senior executive at the central bank.
He said the capital market might not face selling pressure in days to come, if the new instruction is implemented.
Currently out of 48 banks, 26 banks’ capital exposure came down below the regulatory limit while the rest of the banks’ stock investment were beyond the limit, according to a BB source.
However, on February 25 last year, investment of banks’ subsidiaries was brought under banks’ capital market exposure by the central bank in a circular.
In November, Finance Minister AMA Muhith hinted that bank might get two more years to bring down their capital market investment exposure to the permissible limit, saying the capital market is being affected by the provision and there is a great pressure on commercial banks to reduce their exposure.