Dhaka, Bangladesh (BBN)- Bangladesh Bank (BB) has started work of adjusting the banks’ over exposure on ‘case to case’ basis to bring down such exposure within stipulated timeframe without selling any shares, officials said.
“The activities of the BB’s policy supports announced to adjust the banks’ over exposure made into capital market have already been started,” Subhankar Saha, spokesperson of the BB, said while official briefing on Monday.
The central bank of Bangladesh has also assured all stakeholders concerned that no bank would be required to sell any shares for adjusting their excess investments in stocks as per the BB’s latest initiative.
On April 27 last, the central bank made its announcement of revised policy supports following the long standing demand of stakeholders made for extending the timeframe of adjusting over exposure.
Under the revised policy supports, the banks are allowed to get their overexposures adjusted through restructuring the exposure components and enhancing the capital of their subsidiaries with some internal adjustments.
After the announcement, stakeholders expected a circular of the central bank so that investors can be clear about policy supports, as the broad index DSEX lost 188 points in last seven trading sessions on the premier bourse.
“There is no need to issue circular right now to remain the door open for further consideration,” Mr. Saha explained.
At the briefing, Mr. Saha also said by this time two banks have applied to the central bank for converting their investments, made in shares, and loans provided to subsidiaries into ‘subsidiary capital’.
“The required activities have been started to consider the applications of those two banks,” he noted.
The central bank said the remaining eight banks having excess investments made into capital market have also been advised to apply for adjusting their over exposures.
“No objection regarding required policy supports will instantly be provided from the central bank following the demands of the banks to resolve their over exposures,” Mr. Saha said.
He said under the central bank’s initiative the banks’ investments would come down within simulative limit and the capitals of the banks’ own subsidiaries would also be enhanced.
The central bank earlier had asked the banks to bring down their overall capital-market investment within 25 per cent of total capital by July 21, 2016 in line with the Banking Companies (Amended) Act 2013.
According to the Banking Companies Act 1991 (Amended 2013), total capital comprises four components: paid-up capital, balance in share- premium account, statutory reserves and retained earnings, as stated in the latest audited financial statements.
While calculating total investment in capital market different components like all types of shares, debentures, corporate bonds, mutual fund units and other capital-market securities will be taken into account.
Currently, 8-10 commercial banks are maintaining more than 25 per cent market exposures while all banks’ exposures stood at 23 per cent, another BB official said.
“We expect that such policy supports will help in bringing stability in the country’s share market,” the central banker explained.
According to the central bank, all banks’ capital-market exposure was worth BDT 161 billion that dwindled by BDT 65 billion recently following the subtraction of banks’ equity investments made in their subsidiaries.
Earlier, the central bank excluded the banks’ equity investments from their market exposure in a bid to increase liquidity on the bourses.
BBN/SSR/BB