Long-term financing should come from capital market, says BB

The Bangladesh Bank (BB) said it was continuously asking banks to encourage their large corporate clients to tap into the capital market for securing long-term financing and investments.

The central bank said this in the paper of its second half-yearly monetary policy for the current fiscal year published Sunday.

The BB’s recent policy supports are expected to improve the liquidity flow in the capital markets, helping to have a vibrant stock market in the near future, the monetary policy statement read.

The Bangladesh Bank’s monetary and credit programmes for the second half of FY23 would pursue a cautiously accommodative policy stance to contain inflationary and exchange rate pressures which are also a must for the growth of the capital market.

Such steps primarily aim to support the country’s desired economic growth, and ensuring the necessary funds flow to productive and employment-generative ventures, said Abdur Rouf Talukder, governor of the central bank, while unveiling the monetary policy at a press conference in the capital’s BB headquarters.

This was his first monetary policy announcement since taking office as governor on July 12 last year.

A lack of investors’ confidence stemming from worries about rising prices and weakening economic development prospects led to a downward pattern with some volatility in the global capital markets index during the first half of the current fiscal year, followed by a dropping trend since June 2021, the central bank said.

A more significant strain was evident in international financial markets due to a stricter monetary policy adopted by the United States, it stated.

Although the MSCI emerging market and the DSE had shown correlated performance over the past few years, that correlation began to detangle in the first half of FY23, reflecting uncertainty in the global financial markets, the Bangladesh Bank said.

Bangladesh Bank said the capital market in the country remained somewhat quiet in the first six months of FY23 despite the favourable policies backed by the BSEC and the BB, adding that the current adverse macroeconomic situation in the domestic and global economies partly led to the subdued capital market performance.

In the past six months, the trends for all significant capital indices remained downward, albeit there was some variation, the BB continued.

The central bank said the heavy dependency on banks for long-time investments were not befitting in manner and could pose risks for the financial sector’s stability because of maturity mismatch.

The BSEC in collaboration with the BB, had taken several measures, including a particular emphasis on developing, expanding, and modernising the capital market to lure significant and well-reputed companies to be listed in the market, helping increase the flow of funds in the capital market, the monetary policy statement read.

Scheduled banks have been allowed to invest both on a solo and consolidated basis in the capital market from their excess liquidity, with an upper limit of 25 percent of the bank’s capital on a solo basis and 50 per cent on a consolidated basis.

BB has allowed banks and financial institutions to compute their stock market exposure limit based on the purchase price of the securities they own rather than their current market value.

It also provided more time for banks to adjust their investment from the capital market exposure limit, as per the monetary policy statement.