Banks raising stock exposure to prop up the market
The banks’ representatives came up with the decision at a meeting with the BSEC on Wednesday
Banks – with their investment in stocks below a 25% threshold –will increase their exposure by 2%, responding to a call by the securities regulator to boost institutional investors' stakes in the market and increase the liquidity supply.
Besides, the banks which have not yet set up a special fund of Tk200 crore for investment in the stock market have also agreed to invest in this fund soon.
The representatives of the banks came up with the decision at a meeting with the Bangladesh Securities and Exchange Commission (BSEC) on Wednesday.
In the meeting chaired by BSEC Commissioner Dr Shaikh Shamsuddin Ahmed, the regulator agreed that applications for subordinated and perpetual bonds to meet the capital of Tier-1 and 2 of the banks will be approved expeditiously.
"The meeting has been held with the representatives of banks to increase the share of institutional investors in the stock market and increase the liquidity supply," Rezaul Karim, spokesman and executive director of the BSEC, said in a press briefing.
"Those who are below the investment threshold have agreed to increase their investment by another 2%. Besides, they will also invest from the Tk200 crore special fund," he added.
According to law, a commercial bank can invest up to 25% of its capital on a solo basis and a maximum of 50% of the capital, including the investment of the associate company (consolidated basis), in the stock market.
According to BSEC sources, at present, the average investment of banks in the stock market is about 15%. As of November last year, banks have invested Tk17,000 crore in the stock market. And the amount of this investment including subsidiaries is about Tk28,000 crore.
According to the bankers, the Bangladesh Bank policy is one of the major reasons why banks do not come forward in investing despite having good profit opportunities. The investment of a bank in the stock market is calculated based on the market value. When the stock market rises, the bank's investment increases due to the calculation method.
Earlier, some banks had to face fines from the central bank for exceeding the regulatory limit due to a huge jump in the stock market. Bankers say this is a big reason for keeping investments within safe limits.
Apart from this, banks have also invested from special funds set up for the stock market. As of 1 November, 31 commercial banks have established funds worth Tk4,300 crore for the stock market, of which the financial institutions have invested only Tk1,786 crore. These investments of banks from special funds have been excluded from the calculation of banks' exposure in the stock market.