he capital market exposure of the country’s 31 commercial banks, including listed ones, still remains above their respective limit in accordance with the bank company law.
Of them, four are state-owned, one specialised, 22 conventional and four Islamic Sharia-based banks, according to Bangladesh Bank data till December last. Currently, 58% of equity of the banking sector remained invested in the capital market.
Out of capital and reserve worth Tk40,000 crore, the 31 banks investment in the market stood at Tk23,000 crore.
On September 16, last year, the central bank had asked all the commercial banks to reduce their capital market exposure to 25% of their equity by July, 2016 to comply with the new bank company law (amended up to 2013).
Banks that have still maintained higher exposure to the stock market will have to reduce it to 25% of the sum of their paid-up capital, reserve, retained earnings and share premium as per the new act.
The central bank asked the banks to reduce their investment gradually within three years, but without any phasing out plan.
As a result, capital market exposure of maximum banks still remained almost unchanged.
Rather, some banks have further increased their investments within 6 months since the circular was issued, said a senior executive of Bangladesh Bank.
Governor Atiur Rahman on February 23 presented a report on capital market exposure scenario at the bankers meeting and warned them strongly of reducing the excess investment gradually.
According to that report, Bangladesh Bank issued show cause notice to 15 banks as they had increased their investment during September to December period of 2013.
Capital market investment of 11 banks still remained above 91% of their equity, eight of them went even beyond 100%.
The central bank has found that some banks have adjusted credit to the subsidiary companies through extending the limit or providing new loans being failed to recover interest from them on given loans, which is too outrageous and contrary of banking rules, according to the report.
“Though we did not segment the time duration of three years for reducing the investment, the banks have been asked to cut their exposure gradually,” said Bangladesh Bank Deputy Governor SK Sur Chowdhury.
If they cut their investment at a time after three years, then capital market might face a freefall, he said. So, banks should be careful in share market investment to avoid the repetition of the debacle occurred in late 2010, he added.
As soon as the then Awami League-led government assumed 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.
Maximum banks are waiting for opportunity to come out from share market through taking profit, said a senior executive of a private bank.
“They have still three years in hand as Bangladesh Bank did not segment the time duration for limiting the exposure. So, banks are not bound to cut their investment at a time or gradually,” he said.
The share market witnessed a boom in 2009-10 period due to over exposure of the banks. Maximum bank had investment above their 10% limit of liabilities.
But when the central bank tightened their supervision on share market exposure of banks in 2010, the share market fell into a complete disaster.
To revive the share market authorities including Dhaka Stock Exchange, Chittagong Stock Exchange, Securities Exchange Commission and Finance Ministry called upon the banks to re-invest.
But Bangladesh Bank so far remained strict about the reinvestment and rather directed the banks to comply with the investment limit.
