Dhaka, Bangladesh (BBN)- The central bank of Bangladesh has asked the financial institutions to bring down total capital market investment to 25 percent of their equity by December 2010, officials said.
"We've taken the move in line with the existing Financial Institutions Act, 1993 to minimize investment risk of the NBFIs," a senior official pf the Bangladesh Bank (BB) said.
Under the existing Act, no financial institution shall expend or use more than 25 per cent of its paid-up capital and reserves for the acquisition or holding of any kind of shares in financial, commercial, agricultural or industrial institutions or in any similar institutions.
"Any financial institution may, subject to its application and on consent of the BB, expend or use up to 50 per cent of its paid-up capital and reserves for the investment in capital market," the BB official added.
The central bank has taken the latest move against the backdrop of crossing limit of investment in the capital market by 18 non-banking financial institutions (NBFIs) out of 29, according to the central bank statistics.
Seven NBFIs have made investments of more than 100 percent of their total capital in the share market, while 15 NBFIs invested more than 50 percent of their total equity, officially known as paid-up capital and reserves.
Besides, all of the NBFIs excepting only seven have borrowed from the inter-bank call money market which is being invested in the capital market, a BB report said.
On the other hand, over 50 percent of net profit of 14 NBFIs has stemmed from capital market investments. Of them income of three NBFIs exceeded over 100 percent of their net profits.
Market operators, however, see the BB's latest move will not create any major impact on the country's share market, saying that the NBFIs will be able to bring down their investment within the timeframe.
Currently, the commercial banks are allowed to invest not more than 10 per cent of their total liabilities in the capital market, according to the existing provisions.
Besides, the banks will have to ensure holding of shares in line with the existing Bank Companies Act, 1991, the central bank officials said.
BBN/SI/AD-23Aug10-12:02 am (BST)
