Bangladesh Bank has recently asked scheduled banks to submit business plan on how to bring down their excess investment limit in the capital market by July 2016.
To this end, the central bank issued separate letters in the last few weeks to managing directors and chief executive officers of the banks, whose investment limit was now hovering higher than the BB’s ceiling, asking them to place their plan.
As of December last year, banks and their subsidiaries’ exposure stands above 50 per cent of their capital on an average. It stands at 150 per cent for many.
The central bank set separate deadline for the banks to place their business plan to the BB, an official of the central bank told New Age on Sunday.
He said that the central bank had taken the initiative, as the capital market would face a difficult situation if a number of banks withdraw their investment jointly.
Under the circumstances, the BB asked the banks to bring down their excess investment gradually.
According to the latest BB circular, the market value of total investment of a banking company in capital market on consolidated basis shall not exceed 50 per cent of the sum of its consolidated paid-up capital, balance in share-premium account, statutory reserve and retained earnings in accordance
with their latest audited financial statements.
Besides, the banks, which run subsidiaries for the capital market investment, have to reduce their exposure in the capital market in line with the central bank’s directives.
Previously, banks’ exposure-limit on the stock market was 25 per cent of their respective capital.
At a bankers’ meeting, the BB governor on February 18 warned the banks against excessive exposure to the capital market in a bid to avoid a bubble burst witnessed in the previous tenure of the Awami League government.
The stock market saw a boom when the Awami League-led government came to power in 2009.
The market later went through a debacle, which analysts blamed on excessive investments by the banks.
On September 16, last year, the central bank had asked all the commercial banks to reduce their capital market exposure to 25 per cent of their equity by July 2016 for the first time to comply with the new bank company act.
The BB, however, changed the banks’ investment ceiling in the capital market on February 27, 2014.
-With New Age input
