Banks’ stock investment to be brought down to exposure limit by Dec 2023

The Finance Ministry agreed with the central bank to bring down the additional investments of banks in the capital market to the exposure limit by December of 2023. 

To this end, the ministry sent a letter to the Bangladesh Bank on Monday. 

Earlier on August 4, the central bank allowed 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 it for a long time.

In February 2020, the Bangladesh Bank had approved banks’ formation of a Tk 200 crore special fund each to invest in the stock market, which would not be included in the calculation of their capital market exposure limits.

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

In the letter, the 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 operations instead of retail ones to improve the stability of the country’s stock market, the BSEC letter read.

Currently, banks and non-bank financial institutions (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 that would be considered their capital market investments.