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The central bank has decided in principle to exempt banks’ investments in non-listed companies from capital market exposure, a move that can give banks plenty of room for fresh investments in the stock market.
The decision came at a meeting between the Bangladesh Bank, the Bangladesh Securities and Exchange Commission and the Financial Institutions Division (FID) of the finance ministry at the central bank headquarters in the capital yesterday.
The stock market regulator, stock exchanges and brokerage association have long been demanding the exclusion of banks’ investments in non-listed companies from the definition of capital market exposure.
But the central bank resisted, saying it might hurt depositors’ interest.
The Banking Companies Act 1991, which was amended in 2013, has limited a bank’s stock market exposure to up to 25 percent of its capital. The capital includes paid-up capital, share premium, statutory reserve and retained earnings.
But the central bank gives exemption 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 not counted as their exposure.
“The central bank has accepted the proposal positively to make the capital market more vibrant,” SM Moniruzzaman, deputy governor of the central bank, told The Daily Star after the meeting.
BB Governor Fazle Kabir, FID Senior Secretary Md Ashadul Islam, BSEC Chairman M Khairul Hossain and other senior officials of the entities were present at the meeting.
The central bank has taken the issue positively as banks and its subsidiary companies’ stakes with the non-listed companies are now not traded in the capital market, Moniruzzaman said.
“The decision will help ease the ongoing liquidity crunch in the capital market,” said Rakibur Rahman, director of the Dhaka Stock Exchange.
The central bank’s stance on the market is highly positive, which will subsequently improve the confidence of investors, he said.
The higher ups of the three entities have also taken a decision to use the capital market refinancing scheme at the earliest, Moniruzzaman said.
As part of the move, a monitoring committee of the refinance scheme, comprised of officials from the central bank, the BSEC and the Investment Corporation of Bangladesh will hold a meeting on Sunday when it will select the beneficiaries of the fund.
Affected small investors, merchant banks and brokerage houses as well as other capital market intermediaries may get loans from the scheme.
In March 2012, the government formed the Tk 900 crore-scheme to protect the interest of small investors in the capital market. The central bank, on behalf of the government, implemented the scheme through the ICB.
After successful implementation of the scheme, the ICB has returned Tk 856 crore to the central bank.
Banks’ investment in bonds, floated by the ICB, will not be calculated as their capital market exposure, Moniruzzaman said. DSEX, the benchmark index of the DSE, witnessed a huge fall of 775 points over a span of three months. Turnover, another important indicator of the DSE, also dropped to Tk 300 crore from Tk 1,000 crore.
source (TDS)
