Bangladesh Bank has asked the commercial banks to reduce their capital market exposure to 25% of their equity by July, 2016 in accordance with the new bank company law.
It also directed the banks to submit their stock investment statements to the central bank within 10 days from the last working day of every month.
Though the bank company act specifies about the banks’ stock exposure, the directive was issued for closely monitoring the bank’s stock investment and clarifying some issues of the Act, said a circular issued yesterday.
The directive comes two months after the parliament passed the Bank Company (amendment) Act to meeting the demand of time and situation.
Banks that have still maintained higher exposure to the stock market will have to reduce it to 25% of their paid-up capital, reserve, retained earnings and share premium, says the circular.
During calculation of their total investment in stocks, the banks will have to take elements like all kind of shares, debenture, corporate bonds, mutual fund units and other securities into account, said the central bank.
It said banks will have to follow all necessary banking rules and regulations in lending credit to their subsidiary companies like brokerage firm, merchant bank and other similar institutions.
Before the new bank company law, banks were allowed to invest up to 10% of their liabilities in the stocks. A senior executive of the central bank said presently banks’ exposure to the stock market is hovering over 3% of their liabilities.
“The stock exposure of the bank will have to be reduced more than their existing position in line with the new law,” he added.
Prime Finance and Investment Ltd Managing Director Asad Khan said banks have already substantially reduced their exposure to stocks. “Three years time is still in their hand. So, there is nothing to be worried for the stock market.”
After the present government’s assuming power in 2009, the stock market showed a bullish trend and many banks invested beyond their limits. But after a price debacle in 2011, the banks’ huge exposure came under criticism from various quarters.
The International Monetary Fund and the Asian Development Bank recommended that the banks’ investment in the capital market should be 25% of their equities instead of deposits (liabilities).
The donor agencies tagged the condition for the disbursement of the second installment worth of US$150m of a $300m loan under a capital market development programme.
