BB agrees to ease rules

Bangladesh Bank has agreed to relax the rules on banks’ investment in stocks in a move to shore up the capital market and settle the differences between the bank and securities regulators.

The banks’ investments in stocks will be calculated based on cost price instead of the market price.

The agreement was made at a meeting between the BB and the Bangladesh Securities and Exchange Commission (BSEC) on Tuesday.

The stockmarket exposure ceiling for a bank is 25 percent of their capital, according to the banking company law.

The BB earlier directed the banks to adjust their stockmarket exposure exceeding the permitted ceiling, leaving a negative impact on the stock market.

The BB also agreed that the bank’s investment in bonds will not be considered exposure to the stock market.

“The two regulators also agreed to meet frequently to coordinate the rules and regulations so that the market does not get any wrong signal,” said BSEC Commissioner Shaikh Shamsuddin Ahmed after the meeting.

The BB will also allow banks to comply with the corporate governance code that would enable banks to get per cent independent directors, he said.

After bringing some amendments to the capital market stabilisation rules, the BB would also allow banks to transfer unclaimed dividends to the market stabilisation fund, he added.

The benchmark DSEX index lost around 300 points in the last one month. On Tuesday, it fell 1.4 per cent or 92 points to settle at 6,703, its lowest since August 12 this year.

In September this year, the BB had ordered the banks to bring down its stock investment within the regulatory limit. But the bank’s exposure to the stock increased with rising share prices of the securities due to the exposure calculation based on the current market price.

The central bank recently fined Sonali Bank, Southeast Bank, NRB Bank, NRB Commercial Bank, Exim Bank, and Premier Bank for violating the rules.

It also warned several banks, including Eastern Bank, Union Bank, Global Islami Bank, and Agrani Bank, about their overexposure to the stock market.

According to a BB report, the bank’s pouring funds on some fundamentally weak companies helped rise in share prices of those companies after the lockdown slapped last year to curb the pandemic.

During the period, the stock market gained sharply with the benchmark DSEX index crossing above 8,000-mark.

But the BB’s move sent the wrong signal to the market.