Bangladesh Bank alone cannot revive capital market
AS per media report, Bangladesh Bank has relaxed the rules for scheduled banks’ investment in the capital market by excluding their equity investment in subsidiary companies in calculating the banks’ capital market exposure. In the ground of excessive liquidity in banks due to increasing remittance inflow and low loan disbursement, the Central Bank’s directive is expected to make the capital market vibrant and give a new life to banking business. As the capital market is facing setback since the present government came to power in 2009, the latest step by Bangladesh Bank will allow scheduled banks to make fresh investments in stocks.
Stakeholders such as banks, merchant banks and brokerage houses have welcomed the move, which they believe would bring dynamism to the bearish market. But experts have called for cautions fearing that more funds to the capital market may equally encourage market gamblers to create another debacle in the stock market. What is needed is strong monitoring against unusual trading to protect bank’s investment and small investors from a renewed swindling by fake trading.
Under the new provision banks will be able to invest 25 percent excluding their equity share in their subsidiary companies as against a maximum 25 percent of all their stakes including paid-up capital, retail earnings, statutory capital and share premium account.
The banks have so far provided more than Tk 5,600 crore to their subsidiary companies while their (banks) total investment in the capital market stood at around Tk 23,000 crore. The BB data showed that banks’ average investment in the capital market stood at 35 percent on consolidated basis meaning that they will get enough scope for increasing their market exposure.
As it appears the Central Bank took the decision following intensive pressure from the capital market stakeholders. The key index of Dhaka Stock Exchange, DSEX, had lost around 500 points from September 28 to November 11 as investors were apprehending that the market would fall further ahead of the capital market exposure adjustment deadline in July 21, 2016. So 20 subsidiaries of banks and non-bank financial institutions urged Bangladesh Securities and Exchange Commission to convince Bangladesh Bank to extend the banks exposure to stocks by two years more. The Commerce Minister also called on the Central Bank to give banks another two years for adjusting their capital market exposure.
Reducing bank’s interest for borrowers is certainly a practical incentive for investors but political certainty and security are no less important for the country’s economy to be revived. Once in the trap of bureaucracy and their power of deception, no government has an easy way to put things right.
Stakeholders such as banks, merchant banks and brokerage houses have welcomed the move, which they believe would bring dynamism to the bearish market. But experts have called for cautions fearing that more funds to the capital market may equally encourage market gamblers to create another debacle in the stock market. What is needed is strong monitoring against unusual trading to protect bank’s investment and small investors from a renewed swindling by fake trading.
Under the new provision banks will be able to invest 25 percent excluding their equity share in their subsidiary companies as against a maximum 25 percent of all their stakes including paid-up capital, retail earnings, statutory capital and share premium account.
The banks have so far provided more than Tk 5,600 crore to their subsidiary companies while their (banks) total investment in the capital market stood at around Tk 23,000 crore. The BB data showed that banks’ average investment in the capital market stood at 35 percent on consolidated basis meaning that they will get enough scope for increasing their market exposure.
As it appears the Central Bank took the decision following intensive pressure from the capital market stakeholders. The key index of Dhaka Stock Exchange, DSEX, had lost around 500 points from September 28 to November 11 as investors were apprehending that the market would fall further ahead of the capital market exposure adjustment deadline in July 21, 2016. So 20 subsidiaries of banks and non-bank financial institutions urged Bangladesh Securities and Exchange Commission to convince Bangladesh Bank to extend the banks exposure to stocks by two years more. The Commerce Minister also called on the Central Bank to give banks another two years for adjusting their capital market exposure.
Reducing bank’s interest for borrowers is certainly a practical incentive for investors but political certainty and security are no less important for the country’s economy to be revived. Once in the trap of bureaucracy and their power of deception, no government has an easy way to put things right.
