Three banks yet to create special funds

Three scheduled banks--Dutch-Bangla Bank, ICB Islamic Bank and Standard Bank--have not yet set up any special funds despite the Bangladesh Bank’s directive on all the banks to create a Tk 200 crore special fund each for investment in the capital market.

The Dhaka Stock Exchange (DSE) collected the data from the banks as of November last year which showed that 18 out of 21 banks have already formed special funds for investment in the capital market.

As per the DSE data, the banks’ special fund reached Tk 2,985.61 crore by November 30 last year. The special fund worth Tk 1,721.54 crore has been invested in the capital market.

When contacted, officials of Dutch-Bangla Bank, ICB Islamic Bank, and Standard Bank declined to make comments on the formation of the special fund. However, 13 banks have not submitted their reports to DSE. The banks are: Al-Arafah Islami Bank, Bank Asia, The City Bank, Jamuna Bank, Mercantile Bank, National Bank, National Credit and Commerce Bank, The Premier Bank, Rupali Bank, South Bangla Agriculture & Commerce Bank, Shahjalal Islami Bank, Trust Bank, and Uttara Bank Limited.

The officials at the Bangladesh Securities and Exchange Commission (BSEC) said investment from the banks’ special fund still remains insignificant as compared to expectations.

The total amount of the special fund is supposed to cross Tk 8,000-crore mark, they said, adding that the special fund and its investment are still inadequate.

Bangladesh Bank on February 10 in 2020 issued a circular, directing all the scheduled banks to form a special fund of Tk200 crore each for investment in the capital market.

The fund would be in place until February 2025, and banks could take advantage of loans until January 13, 2025.

The fund can be drawn from the banks’ own resources or borrowing money from the central bank through Treasury bills or bond repurchase agreements, or repos at a 5 per cent interest rate. Investments from the funds will not be considered the banks’ capital-market exposure.

In the same year, a meeting decided that the scheduled banks would invest in the stock market through their special funds. The representatives from the finance ministry, the BSEC, and the Bangladesh Association of Banks (BAB) attended the meeting held at Agargaon in the capital with Finance Minister AHM Mustafa Kamal in the chair.

Kamal told reporters that bankers and bank directors assured him of the formation of special funds as soon as possible.

Earlier in March last year, the BSEC requested 28 banks to form special fund of Tk 200 crore each and invest it in the stock market.

The Banking Companies Act 1991 (amended) allows a bank’s stock market exposure to be up to 25 per cent of its paid-up capital, share premium, statutory reserve, and retained earnings.

Currently, many banks’ exposure to the market remains much below the limit, according to the BSEC.

“We are requesting you [banks] to take necessary steps so that your bank makes fresh investments within its existing scope to support the capital market and be a motivation for others,” a letter, signed by its executive director Mohammad Rezaul Karim, reads.

In a recent letter, the BSEC said the investor-base in Bangladesh’s capital market is mostly dominated by retail investors, who account for as much as 80 per cent of the total number of investors.

It is expected that institutional investors will dominate trading activities instead of retail ones to help stabilize the country’s stock market, the BSEC letter reads.

Currently, banks and non-bank financial institutions are allowed to invest 25 per cent of their capital in the stock market, which is called the exposure limit. The calculation of the exposure limit is based on the cost price instead of the market price.

Currently, there are 61 scheduled banks across the country. Of them, 34 are listed on the stock exchanges. All the banks have been asked to provide information on investments in the stock market.