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Bangladesh Bank has extended the period meant for banks to make adjustments to their overexposure in the stock market in a bid to give relief amid existing bearish trends.
The central bank issued a circular in this regard yesterday.
The Banking Companies Act 1991, which was amended in 2013, has limited a bank’s stock market exposure to 25 per cent of its capital, which was supposed to be brought about by 2016.
However, some banks made investments exceeding the ceiling, so they were ordered to sell shares to abide by the order.
Considering the fact that the stock market is now bearish, the central bank extended the adjustment period several times, the last being by August 31 of the current year.
Now, it has been extended to December 31 of 2023.
A stock market analyst, preferring anonymity, said the central bank’s circular gave relief to the market and banks as they are not going to sell shares while the bearish trend is prevailing.
On the other hand, selling shares was not possible in the dry market as most of the stocks are not undergoing trade for the presence of the floor price.
The floor price is the lowest price at which a stock can be traded.
The Bangladesh Securities and Exchange Commission set the floor price of every stock in July to halt the freefall of market indices amid global economic uncertainties.
The floor price was fixed on the basis of the average of the closing prices on July 28 and the preceding four days.
Due to the presence of the floor price, around 200 stocks are getting little to no buyers and their prices have remained the same for weeks.
So, even if they had tried to sell those, it would not have been possible, added the analyst.
The recent central bank decision allowing exposure calculations based on purchase prices would put pressure on banks to make sales.
As the banks bought shares at a price higher than that prevailing at present, either their purchasing power has reduced or their portfolio has suffered overexposure, he said.
The central bank issued a circular in August after getting an order from the Ministry of Finance saying that the purchasing price of shares of other companies, mutual funds, debentures and corporate bonds will be considered during the counting of the highest exposure limit of banks.
(TDS)
