Market price-based calculation of exposure limit creates havoc

BMBA, DBA leaders tell a joint press briefing

FE Report | March 14, 2018 00:00:00

Bangladesh Merchant Bankers Association (BMBA) and DSE Brokers Association of Bangladesh (DBA) jointly arrange a press briefing in the capital Tuesday on the latest market situation. DBA president Mostaque Ahmed Sadeque and BMBA president Mohammed Nasir Uddin Chowdhury seen present at the briefing.

Identifying liquidity shortage as the key reason for the sustained market fall, the market operators made a set of demands including revision of exposure limit to help revive the capital market.

The representatives of Bangladesh Merchant Bankers Association (BMBA) and DSE Brokers Association of Bangladesh (DBA) said at a press briefing that general investors are panicked over the liquidity shortage.

The market price-based calculation of exposure mainly created the liquidity crisis, they said.

"There is a serious fund crisis in the capital market. Those who have funds are not able to invest in the market as the bank's exposure is calculated on the basis of market price," DBA president Mostaque Ahmed Sadeque told the press briefing.

He said cash reserve ratio (CRR) should also be reduced to 5.5 per cent from existing 6.0 per cent.

"The DBA earlier sent a letter to the Bangladesh Bank for considering the calculation of exposure limit based on cost price instead of market price. But the BB is yet to consider our proposal." Sadeque said.

He also said high interest rate on deposits offered by the commercial banks is another reason behind the liquidity shortage in the capital market.

"Due to higher interest rate, some funds are being withdrawn from the capital market."

BMBA president Mohammed Nasir Uddin Chowdhury said the central bank's move on adjustment of ADR has an impact on the market.

"It is true that the central bank has extended the timeframe of adjusting ADR. But some banks are required to take preparation to adjust the ADR. That's why they are not able to expand their credit," Nasir Uddin said.

He said subsidiaries are not able to invest the fund taken from parent companies as those amounts are also considered while calculating exposure limit.

He said the state-owned banks having sufficient funds should come forward to help revive the cash-hungry market.

The representatives of BMBA and DBA said they would again submit a set of proposals including the revision of bank's exposure limit to the central bank.

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