BB allows banks to calculate at cost prices of shares

Bangladesh Bank has allowed the banks to calculate their stock market exposures at cost prices instead of market prices of the shares.

“From now on, a bank can calculate its stock market exposure at cost prices instead of the market prices of shares, corporate bonds, and mutual funds,” said the central bank in a circular on Thursday.

The circular came a day after the finance ministry suggested the BB to allow the banks to do so.

“As per the Bank Company Act, 1991, the bank’s exposure to the stock market can be calculated at cost prices instead of the market prices of stocks,” said the ministry in a letter sent to the Bangladesh Bank on Tuesday.

The recommendation was a long-cherished demand of the securities regulator, BSEC, and stakeholders. The move was apparently made to increase the greater flow of money to the market.

The central bank and securities regulator have locked horns over the issue several times in the past. The decades-old debate over the banks’ exposure to the stock market comes to the surface whenever the indexes keep sliding or going up.

Last year, the BSEC proposed that the BB calculate the banks’ exposure at the cost prices of the shares to help boost the cash flow to the market. In response, the BB said the BSEC’s proposal went against the Bank Company Act fearing that banks’ exposure to the stock market may cross the regulatory limit, deviating from their core banking, which was evident in the past.

The DSE Brokers Association of Bangladesh (DBA) had also earlier written to the BB to consider the calculation of exposure limit at the cost prices instead of market prices of shares.

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