Commercial banks are required to reserve cash at a fixed ratio for lending to offshore banking as per Bangladesh Bank’s new rules.
Experts say that banks will run low on cash because of this.
Furthermore, the liquidity crisis will increase if time isn’t extended to fix the debt-to-credit ratio. Market analysts fear that the stock market will be negatively affected.
Analysts say, that since most companies in the share market end their fiscal year in June, these companies have already started announcing their profit. Despite this, the market is in a cautious position.
Former ICB Director, and professor of department of finance of the University of Dhaka, Dr Mahmud Osman Imam, told The Business Standard, “Commercial banks have to reserve more cash than they did before with the central bank in keeping with the new provision of the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) for lending to offshore banking. So banks will run low on cash. Besides, the financial foundation of our banks is not very strong because of the pressure of defaulting loans. Institutional investors are not speaking up for these reasons, and even in this season, the market is running slow.”
Dr Mahmud added, “One of the major reasons for the great loss in 2010 was the over dependence of the stock market on banks. It would have been easier to deal with this crisis had it been possible to build an effective bond market.”
On the other hand, the indices of the two stock exchanges increased in the week before and after the Eid vacation.
In the past week, the main index of the DSE, the DSEX, rose by 35.43 points, or 6.8 percent, to 5236 points. In the previous week, the major index was up 2.56 points, or 0.05 percent.
However, transactions are slow.
Last week, the total transaction in the DSE was Tk 2,303 crore and the average daily transaction was Tk 460 crore. That's 2.79 percent less than in the week before.
Meanwhile, the main index of the Chittagong Stock Exchange (CSE) had a stable increase the whole week by 0.75 percent to 9734 points.
DSE Brokers Association (DBA) President Md Shakil Rizvee told The Business Standard, “Due to the new rules of Bangladesh Bank, there are some negative effects on the stock market, but it will be alright later.”
Rizvee thinks the reason behind this is that DSE's PE (earnings per share) ratio is 13.81 and the index is 5236 points, which is low. If the PE ratio was higher, then it would have been worrisome.