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Banks urged to invest more in capital market

Stocks see big jump on regulatory steps

FE Report | March 10, 2022 00:00:00

The securities regulator on Wednesday urged all banks to make fresh investment within their existing scope to support the ailing stock market.

The Bangladesh Securities and Exchange Commission (BSEC) suggested the banks three specific ways of making investment afresh as it held a meeting with the listed banks' CFOs (chief financial officers) at the BSEC office in the capital.

First, the banks having exposure to the stock market below 25 per cent can increase it by 2.0 per cent through fresh investments.

Second, the banks that have not yet formed a special fund may accelerate the process to mobilise funds and invest in the market.

And third, the banks could issue perpetual bonds which would get the BSEC approval at a 'super-fast' speed and help strengthen the banks' capital base under tier-I and tier-II.

"The meeting aimed at attracting institutional investments at an accelerated pace … the banks also assured us of enhancing their liquidity support," Dr. Shaikh Shamsuddin Ahmed, a BSEC commissioner, said after the meeting.

He said many banks have not yet formed special funds along with fulfilling the stipulated exposure limit to the stock market. "So, we think that the market can see more investments within the existing scope."

The regulatory move regarding fresh institutional investments came against the backdrop of the recent free-fall of the stock market.

Former BSEC chairman Faruq Ahmad Siddiqi said the market should be allowed to move based on its own strength. "The artificial efforts eventually do not sustain. So, we should depend on actual strength."

He further warned that the publicity of artificial measures plays a role behind the unusual rebounds of the market. "It leaves a negative impact when the influence of artificial supports fades away."

Asked, Shahjalal Islami Bank CFO Md. Jafar Sadeq said that they apprised the BSEC of considering positively the issue of raising exposure by 2.0 per cent more.

"We will talk to the higher management in this regard," he said, adding that the banks have also requested the securities regulator to talk with the central bank that the perpetual bonds' portion is also included in the exposure limit.

"The securities regulator has assured us of working on excluding the perpetual bonds' portion from the banks' exposure limits to the stock market," said Mr. Sadeq.

As per the existing rules, a bank's exposure is set at 25 per cent of eligible capital comprising paid-up capital, retained earnings, statutory reserve and share premium.

And, the exposure is calculated based on the market price of the securities purchased by the bank.

Asked, a senior official of Bangladesh Bank (BB) said the exposure limits of all private commercial banks are below 25 per cent and the average exposure of the banks has recently been set at 16 per cent.

"Presently, the banks' average exposure will stand at 13-14 per cent following the price correction witnessed by the listed securities," said the BB official.

He said the banks have no bar to increase their investments in the stock market in accordance with the stipulated exposure limit. "Investments depend on the banks' own decisions."

The market operators were earlier used to calculate the banks' exposure limit based on the principal amount of their investments made in securities instead of their market prices.

"Following the increased scope of fresh investments, the market operators now will realise the positive side of calculating the exposure limit based on market prices of the securities instead of principal amount," said the BB official.

The central bank earlier issued a circular regarding formation of a special fund worth Tk 2.0 billion each to support the stock market.

The BSEC officials said that 60 private commercial banks were supposed to form an aggregate amount of funds worth Tk 120 billion.

"We have so far received information regarding formation of an aggregate amount of fund worth Tk 45 billion while Tk 30 billion of such fund has so far been invested in the market," said the BSEC official.

The country's stock market recently suffered the highest single-day loss in almost two years as panic-driven investors continued selloffs amid the continuous downtrend of the market.

Following the massive price correction, the DSE broad index DSEX on Monday lost 182.12 points -- rated highest single-day fall since March 16, 2020. The DSEX had lost a total of 492.16 points from February 24 to March 7 following Russia's invasion of Ukraine.

The market, however, bounced back on Tuesday and saw a steep rise on Wednesday thanks to some regulatory measures to reduce the lower limit of circuit-breakers to 2.0 per cent from 10 per cent, effective from Wednesday, to stop the free-fall of stocks.

The upper limit of the circuit breaker, however, remained unchanged at 10 per cent, meaning any stock price can rise up to 10 per cent in a day.

The stock market regulator also ordered an investment of Tk 1.0 billion in the stock market from the stabilisation fund through ICB to ensure higher liquidity in the market.

Following the news, the market jumped at the opening which sustained until the end of the session with no sign of reversal.

Finally, DSEX, the core index of the Dhaka Stock Exchange (DSE), soared 155.73 points or 2.40 per cent to settle at 6,630, after the previous day's 17.77 points gain.

Wednesday's rise is also the biggest single-day gain in 14 months since January 3, 2021, when the DSEX rose 216 points or 3.99 per cent.

"Stocks ended sharply higher as the investors put fresh bets on the stocks at lucrative prices," said the International Leasing Securities.

The stockbroker noted that the market was on the bullish trend throughout the session riding on the regulatory moves.

The surges in prices of some large-cap stocks such as Walton, Grameenphone, British American Tobacco, Berger Paints and LafargeHolcim jointly added over 50 points to the DSEX, according to amarstock.com, market data analyst.

However, an analyst said, the investors were blindly chasing on many low profile stocks along with good ones without conducting proper analysis.

"If these stocks face correction, general investors will be the ultimate losers, which will dent their confidence again," he said, adding that investors should also be cautious about buying junk stocks to avert any misfortune.

Two other indices also ended higher with the DSE 30 Index, comprising blue chips, rose 41.52 points to finish at 2,415 and the DSE Shariah Index (DSES) gained 30.39 points to close at 1,429.

Turnover, a crucial indicator of the market, remained below Tk 8.0 billion and amounted to Tk 7.73 billion, which was 3.62 per cent higher than the previous day's tally of Tk 7.46 billion.

Prices of 97 per cent traded issues increased, as out of 378 issues traded, 365 advanced, only three declined and 10 issues remained unchanged on the DSE trading floor.

All sectors closed higher with seven gaining more than 4.0 per cent each.

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