Dhaka, Bangladesh (BBN)– The central bank of Bangladesh on Thursday relaxed loan provisioning rules on mutual funds (MFs) to bring dynamism in the country’s capital market, officials said.
Under the relaxation, the banks are allowed to keep provisioning considering both market value (MV) and net asset value (NAV) at the current market price.
Earlier, banks used to maintain provisioning against their investment in mutual fund units considering only the MV.
“The real institutional investors will be benefited after increasing transactions of the MFs in the market following the latest directive,” a senior official of the Bangladesh Bank (BB) told BBN in Dhaka. “The banks will have to keep provisioning against their investment in the MFs in line with rearranged provisioning rules.
The BB also imposed 15 per cent (100-85) ‘hair cut’ on the net asset value of the MFs to mitigate the risk of loss in the banks’ books, according to a circular, issued by the central bank, oh Thursday.
Currently, most of the mutual fund’s market value came down to around 60 per cent of their face value. As a result, the volume and market capitalisation of the MF units have decreased significantly due to market perception, which does not reflect the true fair value of the instruments.

BBN/SSR/AD-13Mar15-12:30 am (BST)