Subsidiaries’ capital won’t be added to banks’ investment

Siddique Islam | Published: December 21, 2015 00:00:00 | Updated: February 01, 2018 00:00:00

The central bank has extended its policy support to the share market through redefining the banks' capital market investment policy, officials said.
Under the revised definition, capital provided by the banks to their subsidiary companies will not come into calculation of their (banks) total capital market investment.
The revised definition of the Bangladesh Bank (BB) will be applicable only for solo basis calculation of the banks' capital market investment.
The latest policy directive will come into effect from January 2016, according to a circular, issued by the central bank on Sunday.
The move came against the backdrop of the prevailing sluggish trend in the share market, as the Dhaka Stock Exchange's (DSE) prime index plunged to 4,511.53 points on Sunday.
"We're continuously providing policy supports to bring stability in the country's capital market," BB deputy governor S K Sur Chowdhury told the FE on Sunday.
He also said the latest policy support will help most of the banks to invest more in the capital market.
"We're always supportive towards development of the capital market," the BB deputy governor added.
According to the central bank officials, a total of Tk 56 billion will be excluded from the capital market investment amount of all the banks as per the new definition.
Most of the banks will be able to comply with the regulations of the existing Banking Companies Act, as their total investment will come down to below 25 per cent of their total eligible capital components, they added.
Currently, there are 33 capital market subsidiary companies of the banks. A total of 48 banks, out of 56, have investment in the capital market. Of them, 26 banks' capital market investment is below 25 per cent as on November 30, according to the BB's latest statistics.
The central bank earlier asked the banks to bring down their overall capital market investment within 25 per cent of their respective total capital by July 21, 2016 in line with the Banking Companies (Amended) Act 2013.
According to the Banking Companies Act 1991 (Amended 2013), total capital comprises of four components - paid up capital, balance in share premium account, statutory reserve, and retained earnings, as stated in the latest audited financial statements.
While calculating total investment in the stock market different components, including all types of shares, debentures, corporate bonds, mutual fund units and other capital market securities will be considered.
Under the existing provisions, the market value of total investment of a banking company in the capital market on consolidated basis will not exceed 50 per cent of the sum of its consolidated paid up capital, balance in share premium account, statutory reserve, and retained earnings as stated in the latest audited financial statements.
siddique.islam@gmail.com