Banks asked to report capital market investment info daily

The Bangladesh Bank has instructed the scheduled banks to provide information on their capital market net exposure or investment to the central bank by 5pm daily.

In a letter issued yesterday, the central bank also asked all scheduled banks to report information regarding the short term loans and placement (bank-to-bank deposits).

Earlier, scheduled banks used to share the information fortnightly, but from now on they are bound to give information on a daily basis to the central bank.

A Bangladesh Bank insider said they took the decision to strictly monitor the cash flow to the capital market as money is now cheaper than ever and there is a low interest rate in the banking system.

In a letter sent to banks on 25 July, the central bank asked them to strengthen their internal monitoring to ensure that the stimulus loans are used in the targeted sectors.

The Bangladesh Bank in a primary observation found that the low-cost stimulus loans diverting to unproductive sectors like the capital market may cause failure in achieving the objectives.

To ensure a smooth flow of money in the market, the central bank has already started to mop up excess liquidity from the banking system through the Bangladesh Bank Bills auctions.

In this way, the Bangladesh Bank has so far mopped up Tk8,675 crore from the scheduled banks.

Experts said as a consequence of these steps, there was a pause in the rally in capital market transactions in the last couple of days.

The Banking Companies Act 1991, which was amended in 2013, limits a bank's stock market exposure to up to 25% of its capital. The capital includes paid-up capital, share premium, statutory reserve and retained earnings.

Share trading at the capital market currently closes by 2.30pm, but the banks will get an additional two and a half hours to provide this information to the central bank by 5pm.