Banking groups can invest 50pc of capital

The central bank has asked the commercial banks to limit their total investment in the capital market on consolidated basis along with the existing solo one to minimise investment risk, officials said.
Under the new provision, the market value of total investment of a banking group in the capital market on consolidated basis will not exceed 50 per cent of its consolidated paid up capital, balance in share premium account, statutory reserve and retained earnings, as stated in the latest audited financial statements.
The banks have been also asked for taking necessary measures to gradually bring down their excess investment in the capital market by July 21, 2016 on both solo and consolidated basis.
The Bangladesh Bank (BB) issued a circular in this connection Tuesday and asked the banks for taking effective measures to adjust their share market investment within the prescribed limit by the stipulated timeframe.
All investments of the banks, except the inter-company transactions, subscription to any fund intended to the capital market investment, market value of all capital market-leaning securities including shares, and margin loans and bridge loans provided by the subsidiaries, will be taken into consideration while calculating the banks' total capital market investment on consolidated basis.
"We've taken the latest measures considering that the global best practice requires capital adequacy, risk measurement and management done on a consolidated basis," a BB senior official told the FE.
He also said it will help strengthen the banks' capital base by keeping their capital market risk within an acceptable limit.
The banks must have to comply with the capital market exposure limit directives and submit reports on their monthly shareholding position in a revised prescribed format to the central bank's Department of Off-site Supervision within 10th of each month, he added.
Talking to the FE, another BB official said the banks are allowed to adjust their capital market exposure gradually without hindering the capital market activities.
"They (the banks) do not have to hurry to adjust their portfolios, rather they can take the opportunity to do it throughout the next two years," the BB official explained.
On September 16, 2013, the central bank asked the banks to bring down their overall capital market investment within 25 per cent of 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 the banks' total capital market investment different components including all types of shares, debentures, corporate bonds, mutual fund units, and other capital market securities are considered.