BSEC asks banks to submit stock investment info twice a month

The stock market regulator Bangladesh Securities and Exchange Commission (BSEC) has asked all the scheduled banks to submit data on their investment exposures to the capital market twice every month to mitigate the liquidity crisis in the country’s stock market. 

The securities regulator on Wednesday sent a letter to the managing directors or the chief executive officers of all scheduled banks. 

“We asked all banks to take the necessary steps to make investments through their portfolios within their respective exposure limits. We also sought banks’ investment data regarding the capital market twice every month — one in the mid of month and another at the end of month — which would start by this month,” said Mohammad Rezaul Karim, spokesperson for the BSEC. 

“Now, a bank can calculate its stock market exposure at cost prices instead of the market prices of shares, corporate bonds, and mutual funds,” Rezaul said. 

Earlier on August 4, the central bank allowed the banks to calculate their stock market exposures at cost prices with immediate effect. 

The Bangladesh Securities and Exchange Commission and the relevant stakeholders had been trying to introduce that for a long time.

On February 10, 2020, the Bangladesh Bank approved banks’ formation of a Tk 200 crore special fund to invest in the stock market, which would not be included in the calculation of the capital market exposure limit.

The fund would remain in place until February 2025, and the banks can take benefit of the loans until January 13, 2025.

“The banks have also been asked to form a special fund to raise their investments in the stock market,” Rezaul Karim said. 

In the letter, BSEC said the investor base in Bangladesh’s capital market is mostly dominated by retail investors, whose size accounts for as much as 80 per cent of the total number of investors. 

It is expected that institutional investors would dominate trading activities instead of retail ones to improve the stability of the country’s stock market, the BSEC letter read.

Currently, banks and NBFIs 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.

Earlier, on February 15 this year, the Bangladesh Bank specified the non-bank financial institutions’ investment components which would be considered their capital market investments.

The Banking Companies Act 1991, amended in 2013, allows a bank’s stock market exposure to be up to 25 per cent of its total capital, which includes paid-up capital, share premium, statutory reserve, and retained earnings.

The Financial Institutions Act, 1993 specifies the NBFIs’ investment limit in shares of other companies, but it does not specify which investment components would be considered their capital market investments.

Under the act, the NBFIs can usually use 25 per cent of their paid-up capital and reserve to acquire shares of financial entities, agricultural business entities, or industry-related entities.

However, the NBFIs can use up to 50 per cent of their paid-up capital and reserve for the acquisition of such shares based on approval from the central bank.

Currently, there are 61 scheduled banks across the country. Of these, 33 banks are listed on the stock exchanges while the others are unlisted. All banks have been asked to provide information on investment in the stock market.