Banks turning away from capital market, with investments far below limit set

As many as 32 scheduled banks have the scope of investing around Tk 37 billion more in total into the capital market, keeping their exposure to listed securities within the permissible limit on solo basis.
At present, the lenders have a little over Tk 136 billion invested in equity and debt-backed securities, according to the Bangladesh Securities and Exchange Commission (BSEC).
The regulator compiled the data as, BSEC Executive Director Mohammad Rezaul Karim said, it seeks to increase participation of institutional investors in the capital market that has been suffering from an acute liquidity crisis.
It sent a letter last week to the 32 banks, requesting them to help stabilise the market through fresh investments.
Banks can invest up to 25 per cent of their capital in listed securities on a solo basis and 50 per cent on a consolidated basis, according to the Bank Companies Act.
If loss-making ICB Islami Bank is excluded from the list, Dutch-Bangla Bank has the lowest capital market exposure at only 4.54 per cent as of February 28. It can inject up to Tk 7.58 billion in addition to its existing investment in stocks, listed mutual funds and listed perpetual bonds.
The lenders' capital includes paid-up capital, retained earnings, statutory reserve and share premium.
In its letter, the securities regulator elaborated on its role in improving liquidity in the market through listing of new banks and approval of rights issues.
It also said it was helping banks bolster their capital base by approving debt applications.
On low capital market exposure, Managing Director of Dutch-Bangla Bank Abul Kashem Md. Shirin said it had complied with an earlier directive of the central bank by forming a special fund of Tk 2 billion for the capital market.
In February 2020, the Bangladesh Bank asked all scheduled banks to create a special fund worth Tk 2 billion each of five-year tenure, only for investing in the capital market.
The Tk 2 billion investment remains out of the calculation of the bank's market exposure.
Md. Shirin refused to speak any further on the matter.
The other banks having market exposure lower than the limit include Mutual Trust Bank (MTB), Union Bank, Mercantile Bank, Jamuna Bank, BRAC Bank, Prime Bank, and Southeast Bank.
MTB's group chief financial officer Mohammad Nazmul Hossain said the securities regulator had requested the lender to increase support for the capital market.
Since February, the bank's exposure rose to around 15 per cent of its capital following a fresh investment of Tk 1 billion, he added.
On what BRAC Bank has been utilising funds withdrawn from the market, its Chairman Ahsan H Mansur said funds were being used for lending, which is "our core function".
The aggregate amount of consolidated investments made by the banks stood at about Tk 225 billion as of February 28. Most of the lenders have lower stakes in the market than permitted on consolidated basis too.
Managing Director of Jamuna Bank Mirza Elias Uddin Ahmed explained why banks were not so keen on increasing their investments in equity and debt instruments.
"Before investing public money the banks have to assess risk and profitability."
The ongoing economic stress and the market situation are the reasons behind the banks' reluctance to invest in the market, Mr. Ahmed said. "It's difficult to diversify a portfolio due to the floor price. Many investors' money has remained stuck."

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