Bangladesh Bank introduces new policy prop to stem capital market slide

Bangladesh Bank has at last rolled out a new policy support to stop slide in capital market.

Now, investment made by banks in shares and loans provided to subsidiaries will be treated as subsidiary capital.

This will help the banks to reduce their market exposure within the permissible limit without selling their shares. 

Bangladesh Bank’s Executive Director and spokesperson Subhankar Saha at a press conference on Monday said the process of adjusting bank’s excess investment in the capital market had already started.

Saha said recently two banks had appealed to the central bank to convert subsidiary loans to subsidiary capital. “The decision has been taken to address the concerns of these banks immediately."

The other eight banks having over-exposures had been asked to move the central bank for readjustment.

"Due to adoption of this policy, subsidiary capital of the banks will increase on the one hand while it will bring down their exposure within the permissible limit on the other. So, it will benefit all the banks," he said.

IDLC Executive Director Muniruzzaman has hailed the move and believes it will have a positive impact on the capital market.

As per the Banking Companies' Act, a bank can disinvest a maximum of 25 percent of its shares.

In 2013, the central bank asked those banks who had exceeded the cap to bring down their market exposure to 25 percent of the sum of their paid-up capital, reserve, retained earnings and share premium by July 2016.

Banks had sought to increase the deadline by two more years. But, the central has come out with the policy assistance.