The Financial Express, 31 July 2012
A government committee has recommended allowing the commercial banks to invest 40 per cent of their capital in the share market instead of 25 per cent, as proposed by the central bank, officials said Monday.
Currently, the banks can invest up to 10 per cent of their total liabilities in the capital market.
The Ministry of Finance formed the seven-member committee, headed by former secretary A K Abdul Mubin, to amend the Bank Companies Act 1991 for minimising risk and ensuring good governance in the country’s banking sector.
The committee has been asked to examine the changes proposed by the Bangladesh Bank (BB) in a draft of the Bank Company (Amendment) Act 2012.
The committee has recommended higher investment in the share market by the banks, considering the overall situation of the country’s capital market.
“We expected that the higher investment by the banks will help bring back stability in the country’s capital market through restoring confidence among small investors,” Mostofa Azad Chowdhury Babu, a member of the committee, told the FE.
During the recent months the country’s stock market has been in a bad shape, in terms of market capitalisation of the listed issues, leading to a sharp decline in the indices.
The benchmark index of the Dhaka Stock Exchange (DSE) – the DGEN – came down to 4159,17 points on July 30, 2012 from its highest of 8918.51 points on December 05, 2010, the DSE data showed.
The committee believed that the banks’ financial base is strong enough to invest more in the share market, added Mr. Babu, also vice-president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).
On the other hand, the central bank has recommended amendment to the regulations relating to the banks’ capital market investment to minimise risks, the officials said.
The banks should not be allowed to invest in the share market more than 25 per cent, in any form, of their total capital, the BB said in its proposal for the Bank Company (Amendment) Act 2012.
“We’ve proposed the exposure limit as the threshold for the banks,” a BB senior official told the FE, adding that the central bank has recommended the investment limit considering their financial risk.
The central bank earlier estimated that if any bank invests 10 per cent of its deposit and if the share prices slide by 25 per cent from their purchase price, the bank’s capital adequacy ratio will decline by a minimum of 2.0 per cent.
At present, the banks are allowed to invest 10 per cent of their liabilities (deposit) in the share market in line with the section 26 (2) of the Banking Companies Act 1991.
Under the existing rules, holding of equity share in any form should not exceed the approved limit. Additional or unauthorised amount of holding will be deducted at 50 per cent for Tier-1, generally known as core capital, and 50 per cent from Tier-2, generally known as supplementary capital.
Bangladesh Economy 
Leave a comment