The Bangladesh
Bank on Monday directed the commercial banks to reduce their stock market
investment to 25 per cent of the total of four components of core capital in
the share market by 2016 in line with the newly enacted bank companies’ act.
The BB directive also said from now on banks have to submit
their stock market investment report to the offsite supervision department of
the central bank within 10 days after a month ends.
It also provides a chart for the stock market reporting of
the banks.
According to BB directive, the banks can invest into shares,
corporate bonds, debentures, mutual funds or any other stock market instrument
or funds up to 25 per cent of their core capital that includes paid-up capital,
share premium, statutory reserve and retained earnings.
The directive said the banks’ loan to any subsidiary company
which is directly or indirectly involved with the stock market operation will
be counted as stock market investment.
The directive also said the loan to banks’ subsidiary
merchant banks or any other company will follow the single borrower rules of
the central bank.
It, however, said banks’ loan to stock dealers for buying A
and B category shares/debentures can be 60 to 70 per cent of the market price
but it cannot be more than Tk 3 crore.
The BB directive issued on the day also spelled out the
investment which will not be considered as capital market investment.
It said land ownership documents and mortgage paper, shares
of non-listed public enterprises, sub-debt instruments issued by other banks,
share of Central Depository Bangladesh Ltd and stock
exchanges will not be considered as capital market investment.
Earlier, banks could invest up to 10 per cent of their total
liabilities in the capital market.
The new limit means that the exposure limit for banks in the
capital market would be lower after 2016.
The BB
directive comes after the parliament in July passed the Bank Company
(Amendment) Bill - 2013 which redefined banks’ capital market exposure.
The act said that within three years of enactment of the law
the banks have to lower their investment to the new limit.
Capital market stakeholders said that the banks currently
have around 2-3 per cent of their liabilities in stock market investment.
The bill also keeps a provision of maximum Tk 20 lakh as
fine for investing more than the new limit in the share market by the bank
companies.
In case of continued violation of this provision, another Tk
50,000 will be fined per day from the second day of breaching the law.
News Source:New Age Bangladesh
Dated:17-Sep-2013
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