BB not willing to raise banks stock exposure limit

Bangladesh Bank has rejected the government’s move to raise the limit of banks’ stock market exposure and state loan guarantee to large business group for investment in priority sectors. Besides, the local business groups can take any large scale loan from banking sector through syndication of banks and financial institutions if the government provides guarantee to the loans. Bangladesh Bank General Manager Abu Fara Md Nasar last week sent a letter for not amending the provisions 26 (A) and 26 (B) of Bank Companies Act 1991. He said if the provisions are amended, there will be a negative impact on the country’s stock market. Officials of the Bank and Financial Institution Division said the central bank does not agree with the amendment of the that provision 26 (A) as the big groups want to have contracts with the banks who invest in stocks. They said the central bank thinks the investments are not certain and market base. BB letter reads: “Overall bank investment in the stock market needs to limit for betterment of the local stock market.” It says the government will provide guarantee to the business group loans on case to case basis. It says: “The syndicated loans to the large business groups will ease risk in implementation of any big project.” Under the provision 26 (A), the bank is not allowed to invest in stock market more than 5% of its total paid up capital. The banks’ share market exposure limit is 25% of its capital under the provision 25 (B) of the Bank Companies Act 1991. The capital includes paid-up capital, share premium, statutory reserve and retained earnings. But the Bangladesh Bank gives exemption of bank exposure if the government provides loan or guarantee to the bank for investing in the stock market, according to the law. Earlier in December 2015, the banks’ capital given to their stock market subsidiaries were kept out of their stock market exposure. The decision came into effect in January 2016. Although the move had failed to boost the capital market, which has been witnessing a steep fall in recent days. The Banking Companies Act 1991, which was amended in 2013, has limited a bank’s stock market exposure to 25% of its capital by July 21 last year. Most of the banks’ investments into the capital markets are within their limit, according to the Bangladesh Bank. Of 56 banks, about 10 banks have over-investments in the stocks.