Dhaka Stock Exchange has proposed keeping a bank’s exposure limit in stock market at 25% of its total regulatory capital instead of only paid-up capital.
The premier bourse sent a letter to Finance Minister AMA Muhith on 16 May urging him to change a related provision in the draft Bank Company (amendment) Act.
In the draft amendment approved by cabinet already, the exposure limit has been set at 25% of paid-up capital, increasing from the existing 10%.
International Monetary Fund too threw a credit condition to set banks’ exposure limit at 25% of total capital.
DSE sent a letter signed by its President Rakibur Rahman regarding this to the Finance Minister Abul Maal Abdul Muhith on 16 May for initiatives to be taken by Bangladesh Bank in further stabilizing the capital market.
The letter signed by DSE president Rakibur Rahman also proposed considering provisioning facility for loss in the stock market by banks and financial institutions.
According to the proposals, the facility will be allowed for 15 months starting from June 30, 2014 instead of March 31, 2013 taking the current political instability.
DSE sent copies of the letter also to governor of Bangladesh Bank, chairman of parliamentary standing committee on finance ministry and chairman of Bangladesh Securities and Exchange Commission (BSEC).
The bourse authorities argued that the paid-up capital, which is called Tier-I Capital, constitutes only one part of total regulatory capital.
As per BASEL requirements, the other capitals include Tier-II and Tier-III capitals.
DSE says exposure limit should be 25% of all three tiers of capital rather than of only one tier.
IMF condition also includes all the three tiers of capital to set banks’ exposure limit in stock market.
DSE Board would therefore request to initiate necessary steps for change the proposed Bank Company (Amendment) Act 2013, read the letter.
DSE Board thinks that the provisioning guidelines should be relaxed further to ensure a soft and smooth adjustment by the banks and financial institutions over a longer period of time.
It requested Bangladesh Bank to consider allowing provisioning against loss in capital market investment by banks and financial institutions during five quarters starting from June 30 next year.