Earlier, the banks used to share this information with the central bank once a fortnight
As banks are investing money on short term loans, Bangladesh Bank (BB) believes that they may be going to various unproductive sectors, including the stock market.
For this, they have asked banks to submit information on the use of funds outside the loan and placement (bank-to-bank deposits) on a daily basis.
Earlier, the banks used to share this information with the central bank once a fortnight.
They have also been instructed to be sent separate reports daily on the money they (banks) invested on their own, as well as those by their affiliate companies.
In this regard, Bangladesh Bank Executive Director and Spokesperson Sirajul Islam said that Bangladesh Bank has to be notified where the money of a bank is going.
“For this, information has been sought on a daily basis for supervision. A letter has been issued in this regard last week,” he added.
In that letter to the managing directors (MDs) of public-private banks, it was directed to submit the daily transaction information of the bank in the currency market on a daily basis by 5pm as per the schedule.
A table has also been attached to the letter. There, the amount of daily investment of the bank in the currency market and the actual investment at the end of the day must be mentioned.
In addition, the bank has to mention in the table how many loans it has given to its associate brokerage house and merchant banks, how many loans or investments it has adjusted and at the end of the day, the actual loan or investment value.
A Bangladesh Bank source said that they took the decision to strictly monitor the cash flow to the capital market as money is now cheaper than ever and there is a low interest rate in the banking system.
Banks can invest up to 25% of their regulatory capital in the stock market. The bank's paid-up capital, unallocated profits in the reserve fund, premium income and return income are the four components of regulatory capital.
However, at the end of June, the average investment of banks in the stock market was 14.5%.
Apart from this, each bank can invest up to Tk200 crore by forming a fund, which is outside the limits of the bank's investment in the stock market.
Banks have so far invested Tk1,782 crore in the stock market with this special facility.
In a letter sent to banks on 25 July, the central bank asked them to strengthen their internal monitoring to ensure that the stimulus loans are used in the targeted sectors.
The Bangladesh Bank in a primary observation found that the low-cost stimulus loans diverting to unproductive sectors like the capital market may cause failure in achieving the objectives.
To ensure a smooth flow of money in the market, the central bank has already started to mop up excess liquidity from the banking system through the Bangladesh Bank Bills auctions.
In this way, the Bangladesh Bank has so far mopped up Tk8,675 crore from the scheduled banks.
Experts said as a consequence of these steps, there was a pause in the rally in capital market transactions in the last couple of days.