Banks to invest in stock market from next week

FE ReportThe apex body of the country's bankers - Association of Bankers, Bangladesh (ABB) - has decided to make investment in the stock market from next week to help stabilise its situation in the light of the suggestion of the central bank, officials said. The decision came Thursday at a meeting held at a city hotel where some 30 senior bankers, including those from some state-owned commercial banks such as Agrani, Sonali and Janata, were present. After the meeting, ABB President K Mahmood Sattar told the newsmen that banks would start making more funds available as liquidity support for the stock market from next week. "It's an opportune moment for the banks to invest in the stock market as they have the capacity to support the market in a bigger way for the sake of enjoying good rates of returns," Mr Sattar said. He declined to comment on the possible size of banks' investment that may be made in the stock the market, adding, "It's a matter of individual banks. They will fix the level of their respective investment, according to their cash flow positions and strategies." However, he expressed his optimism about restoration of some kind of stability in the market, following a good response by banks to the need for more liquidity in the market, in tandem in line with the move of the government. "At the meeting, all the participants have agreed to make investment in the stock market, in line with the limit set by the central bank," he told the FE. He said the bankers at the meeting agreed to give a priority attention to making fresh investments in the capital market as the present price earning (PE) ratio of most stocks is attractive enough to expect better rates returns. He said the banks, whose investment in the stock market is still below 10 per cent of their aggregate liabilities, will deploy more funds in the market. The statistics available with the central bank put the current level of banks' aggregate investment, with the exception of two, in the share market at around 3.0 per cent or Tk 16.542 billion of their liabilities in September, 2011, although they are otherwise permitted under the existing provisions of Bank Company Act to invest up to 10 per cent of their liabilities. The banks can now invest Tk 54.901 billion in the capital market as their liabilities stand at Tk 549.011 billion. This situation will provide some operational leeway for the banks to provide money, at least to the extent of Tk 38.359 billion, in the stock market under the existing laws. "Every bank has an investment committee. The banks will finalise their investment plans at the meeting of their respective committees," Mr Sattar said. On October 12, Bangladesh Bank (BB) and the Securities and Exchange Commission (SEC) held a meeting and decided to persuade the country's banks to inject more funds into the stock market, if necessary by allowing relaxations of some of the existing investment guidelines. After the meeting, the central bank expressed its views in favour of rescheduling the margin loans - the loans that were earlier provided to their clients in line with the guidelines of the BB - by their subsidiary merchant banking companies. The BB said it would positively consider the proposal for relaxation of the condition about down-payment as is normally applied by the banks for rescheduling of any such loan under the standard norms and practices, set earlier by the central bank. When asked whether the banks will seek any relaxation of the condition about down-payment, the ABB president said, "The banks will apply to the BB for relaxation only when they deem it necessary." He said the respective banks and their subsidiary firms will decide whether they will give any waiver on the accrued amount of interest on account of any margin loan.