Wednesday, 1 February, 2023

Banks asked to withdraw addl stock investment

  • Staff Correspondent
  • 21 December, 2022 12:00 AM
  • Print news
Banks asked to withdraw addl stock investment

The commercial banks have been asked to withdraw “additional investment” from the capital market within next year as exposure of some lenders surpassed the limit in recent times.

Bangladesh Bank has sent a letter to the chief executive of banks in this regard on Monday.

Banks can invest in listed securities up to 25 percent of their equity on a solo basis and 50% percent on a consolidated basis, according to the Bank Companies Act.

Economists mentioned the circular as a “safe guard” for the banking industry as banks made investment to the capital market exceeding the limit.

Policy Research Institute (PRI) executive director Ahsan H Mansur said the central bank has made the circular for safeguarding the banking industry which is overexposed to the share markets.

“The limit is as good as 25 percent. Some banks topped with 30 percent exposure to the capital market. That is a risk factor for banks as bourses are volatile spaces,” Dr Mansur told the Daily Sun.

Dhaka University’s former teacher of economics Prof Abu Ahmed termed the circular as “baseless”, saying that the banks could not sell their existing securities in the market due to floor price.

“The banks should be careful about the savings of commoners rather than invest in the capital market. Besides, the timeframe to withdraw the fund is not enough as the banks couldn’t sell shares on trust issues,” said Abu Ahmed.

The finance ministry in August recommended that the Bangladesh Bank calculate the capital market exposure limit of banks on a cost basis.

Bangladesh Bank has set a policy based on the various financial indicators of that bank, how much a bank can invest in the capital market.

 The central bank fixed the time till December next year to remove the excess investment of the “exposure” or investment limit of the bank's capital in the capital market.

The central bank has also said that the issue of shares of any company should be taken collectively or individually in the case of holding securities.

Earlier, on 17 July, the central bank sent a letter to the finance ministry seeking an opinion regarding a solution to banks' capital market exposure problem.