Banks can set up special fund to invest in stocks

The government has announced plans to offer special liquidity benefit and policy support to banks as part of a long-term strategy to reinvigorate the stock market.

Banks can now set up a 'special fund' of Tk 2 billion each to invest in the capital market beyond the regulatory spending cap.

The funds can be drawn from a bank's own resources, failing which it can borrow from Bangladesh Bank through treasury bill/treasury bond repurchase agreements or repos at a 5 percent rate.

They can also use a combination of their own finances and credit from the central bank through repos to set up the fund.

Bangladesh Bank issued a circular in this regard on Monday. The provision will remain effective for five years until February, 2025.

The move has been welcomed by analysts, who believe it can prop up the flagging capital market.

After a massive slump in January, bourses briefly improved upon the intervention of the prime minister before petering out again.

The main index of the Dhaka Stock Exchange, DSEX, was mostly hovering in the negative territory last week as it shed 17 points.

The prime minister, in her six-point instructions to revitalise the stock market on Jan 16, called on the authorities to ensure increased participation by banks and financial institutions while easing lending conditions for merchant bankers and institutional investors.

The guideline on the special fund for banks was published in keeping with her instructions, according to Bangladesh Bank officials.

The move forms part of a long-term plan to "maintain a continuous liquidity flow in the capital market", according to the circular.