Bangladesh Bank would introduce a guideline by the end of this month to reduce the commercial banks’ equity risk exposure to the local stock market.
The measure is to comply with the condition Asian Development Bank tagged with the disbursement of the second installment worth of US$150m of a $300m loan under a capital market developmentprogramme.
The Bank Company Act was passed in parliament on 14 July and as a subsequent step Bangladesh Bank would introduce the guideline through a circular to be issued in a week or two.
Under the programme, a total of 15 conditions including technical assistance for supporting key capital market reform areas this year, enhancement of the inspection by Bangladesh Securities and Exchange Commission, its investigation and enforcement capacity, improvement of regulations,governance, and operation of stock exchanges by facilitating the demutualisation process .
“We want to fulfill the conditions of ADB development programme,especially demutualisation, because the tenure of the government endsin three months,” said a senior official of the banking division, apprehending that the new government might not carry forward the demutualisation. “So, the banking division wants to complete the process within the tenure of the present government.”
An ADB mission during a visit to Dhaka during June 24-27 reviewed the conditions before disbursement of the second installment of the project.
As per the conditions, the authorities will have to place a bill in parliament on the formation of an independent financial reporting council by end October 2013,and a draft white paper (being renamed national insurance policy paper) is being prepared which will have to be discussed at a nationalstakeholder seminar in August before approval by the cabinet expectedly by end November or early December.
Approval and establishment of the tribunal is expected by end August, which will include appointment of a special judge and related rules, and policy action compliance can be expected in December or the first quarter of 2014.
A new organogram has been prepared with the revised BSEC structure as well as the human resource development program which include establishing and staffing the office of the chief accountant.
The revised organogram will be submitted to the ministry of finance for approval by August in accordance with the ADB condition.
Seven out of fifteen conditions have already fulfilled under the project while some conditions are now under process of implementation, sources in the banking division said.
The conditions already fulfilled are: submission of the demutualisation bill to parliament, exemption of taxes from the share premium and transaction of bonds, amendment to stamp act 1899, issuance of circular on efficient price discovery mechanism in auctioning of government securities.
Two conditions fulfilled by the borrower agencies are: amendment to the mutual fund rules allowing the asset management companies to reduce their exposure to equity securities below 75% and tax exemption in investment in private sector open-end mutual funds like the advantage enjoyed in open-end mutual funds managed by the Investment Corporation of Bangladesh (ICB).
The conditions have been fulfilled through steps taken by the respective stakeholders including Bangladesh Bank, BSEC, National Board of Revenue and the Internal Resources Division.