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Bank investment in shares to be halved

  • Published at 06:47 pm November 6th, 2013
Bank investment in shares to be halved

The commercial banks’ investment in the share market will have to bring down by almost half of the current position in accordance with the new bank company amend act 2013.

Bangladesh Bank has asked the banks to adjust the investment level as it set a deadline of 3 years to reduce the investment level, said a senior executive of Bangladesh Bank.

The banks are now allowed to invest 25% of their total paid up capital and reserves in the share market, according to the amended act. Earlier, the banks’ investment threshold was 10% of total liabilities.

The central bank recently issued a circular asking the banks to bring down their investment gradually within July 21, 2016.

Thirty banks are listed in the share market and their total investment in the share market stood at Tk160bn, which is 4% of their total liabilities as of March, 2013, according to the Bangladesh Bank data.

They will have to bring down the investment to Tk95bn in accordance with the circular.

The listed banks had a cumulative liability of Tk4tn in March, 2013. As a result, they could earlier invest up to Tk400bn in the share market. They, however, invested only Tk160bn as of March.

Currently, the listed banks have Tk380bn of paid up capital and reserves, and they would be able to invest up to Tk95bn in accordance with the newly amended rule.

“To reduce the investment risk of banks, Bangladesh Bank sets a time limit of 3 years for bringing down their investment in the share market as Bangladesh share market environment is very much unpredictable,” said Bangladesh Bank Deputy Governor SK Sur Chowdhury.

“So this sector is not suitable for banks to invest.”

The banking sector is holding the major stake in the share market, which went to its peak in 2009-10 due to over investment by the banks. Most of the banks had investment above 10% of their liabilities.

As the central bank tightened its supervision in 2010, the market started falling. To revive the share market, authorities including Dhaka Stock Exchange, Chittagong Stock Exchange, Bangladesh Securities and Exchange Commission and the Finance Ministry called upon the banks to reinvest.

But, the central bank remained strict against reinvestment and asked the banks not to go to the market.

“As the banks are now well regulated and doing good business, they are capable of giving minimum 15% to 20% dividend at the year end. So the current lucrative share price of the banks offers a good chance for buying shares,”’ said Prof Abu Ahmed of Dhaka University.

However, he said, the banks have to adjust the investment with the new amended act. But there will be no significant changes as the banks already started the process even earlier. “It will not be so detrimental to the market.”