The securities' regulator and the merchant bankers have separately proposed revising areas and calculation of banks' exposure to facilitate higher institutional investment in stock market.
The Bangladesh Merchant Bankers Association (BMBA) Monday sent to the state minister of the Ministry of Finance (MoF) a set of proposals, including one that suggested calculation of banks' exposure to the capital market on the basis of investment in listed securities only.
The Bangladesh Securities and Exchange Commission (BSEC) has also suggested non-inclusion of banks' investment in open-end mutual funds (MFs) while calculating their exposure to capital market.
The securities' regulator will send the proposal to the central bank soon, according to a BSEC official.
The BSEC said as per the revised Bank Companies Act, banks' exposure to capital market is calculated basing on market price of securities.
"Open-end MFs are not listed funds. Secondly, the units of open-end MFs have no market price other than sale and repurchase prices fixed once in a week," said an official of the securities' regulator.
He said market prices of the securities are taken into consideration while calculating banks' exposure on the daily basis. But such calculation is not applicable in the case of open-end MFs.
"The investment of bank in open-end MFs as sponsors remain locked-in for three years. After three years, the banks as sponsors can sell units as per BSEC approval. But no sponsor far sold their units," said the BSEC official.
He also said the BSEC is not aware as to how the market prices of open-ended MFs are defined while calculating the banks' exposure to the capital market.
According to the securities' regulator, the banks have investment worth around Tk 30 billion in MFs including open-end ones.
The Banking Companies Act 1991, which was amended in 2013, has limited a bank's stock market exposure to 25 per cent of its capital.
The capital includes paid-up capital, share premium, statutory reserve and retained earnings.
Earlier, the central bank excluded the banks' investments made into subsidiaries from their exposure following the plea of stakeholders.
In its proposal, the BMBA urged the ministry to take into account only listed securities while calculating the banks' capital market exposure.
They said the long-term or strategic investments need to be excluded from the exposure limit as those investments are not made for frequent trading.
"Non-convertible preference shares also need to be excluded from the capital market exposure as these investments will never be converted into equity shares and will not be traded in the market," the merchant bankers said.
In its proposal, the BMBA also has preferred reporting on exposure on quarterly basis instead of fortnightly and monthly basis.
"Capital market exposure needs to be calculated on the basis of cost price instead of market price," the BMBA also proposed.
The merchant bankers said capital market exposure of some banks and financial institutions increase without major fresh investments if the share prices move positively on the bourse.
The BMBA leaders could not be reached for their comment regarding the merchant bankers' proposal.
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