Dhaka, Bangladesh (BBN) – The International Monetary Fund (IMF) has recommended amendment to the regulations relating to capital market investment by the banks to minimize risks, officials said.

The banks should not be allowed to invest in the share market more than 25 per cent, in any form, of their total capital, according to the IMF suggestions.

A bank is now allowed to invest in capital market an amount not in excess of 10 per cent of its total liabilities.

A five-member Money and Capital Market (MCM) team of the IMF has already submitted its report in this connection to the ministry of finance and the central bank after completing a five-day visit to Bangladesh since April 4 this year.

“The central bank is now working on the issues concerning the country’s overall financial sector situation,” Executive Director of the Bangladesh Bank (BB) S K Sur Chowdhury said.

The rules and regulations relating to investment in the capital market should be amended to protect the depositors’ interest, he added.

The Washington-based multilateral lender’s recommendations came against the backdrop of the collapse of the country’s stock market after an unprecedented bull run. A probe body formed by the government submitted last week its report exposing some institutions and individuals allegedly involved in the stock market scam.

The central bank has estimated that if any bank invests 10 per cent of its deposits and if the share price slides by 25 per cent from its purchase price, the bank’s capital adequacy ratio will decline by a minimum of 2.0 per cent.

The BB has already informed such stress test result to all commercial banks for taking necessary measures in this connection, the central bank officials added.

BBN/SSR/AD-12Apr11-12:58 am (BST)