Banks yet to put special funds to use for equity investments

Banks are looking forward to a revival of the equity market to inject money into it from the special funds that they have created or have taken approval of from their boards.
The five-year special-purpose funds were intended to solve the liquidity crisis of the market when the central bank in February 2020 instructed the lenders to form them.
However, the liquidity crunch and stock market volatility have kept the banks from investing in stocks. The BB instruction came in response to a request from market intermediaries for a special investment fund of Tk 100 billion. Each bank is allowed to invest a maximum of Tk 2 billion outside its stipulated market exposure limit of 25 per cent of its paid-up capital.
"The weighted average risk of such investment is very high," said Managing Director of Pubali Bank Mohammad Ali, adding that the bank had already created a fund but had not invested in equity securities.
Requesting anonymity, a senior official of Mercantile Bank said the lender's experience had already been bitter with earlier investments in the market due to the restriction on the stock price movement.
"There is no exit from the existing investments in stocks."
The bank will expand its involvement in the market only if it shows a turnaround. A higher stock investment will also depend on the upcoming monetary policy, he said.
To elaborate on the matter, the Mercantile Bank official said banks were unable to make investments in the market as they were in an acute fund crisis.
Presently, the banks are disbursing loans at interest rates up to 12 per cent against the maximum deposit rate of 9-10 per cent. If the BB tightens money flow further, interest rates may go higher, intensifying the fund crisis.
The outstanding loans taken by banks from the central bank under repurchase agreements (REPO) are worth around Tk 600 billion, which reflects the extent of the crisis.
Banks will see if investment return from listed companies is 10 per cent or above, the bank official said.
Good-performing companies capable of ensuring such a high return is limited in the market.
Meanwhile, 35 banks so far have sought and received board's approval of a special fund for the market among 61 scheduled banks.
Though they have refrained from making equity investments, they increased assets in risk-free Treasury bonds and corporate debt securities for they saw hefty returns from fixed-income securities.
The company secretary of EXIM Bank, Md. Monirul Islam said the bank would put the special fund provision to use if the market bounced back.
"The market starts showing a sigh of stability [after election]. Our investment will be increased gradually," he said.
Of the 35 banks, 22 have board's permission to set aside Tk 2 billion each for purchasing stocks.
The banks include Al-Arafah Islami Bank, Brac Bank, Eastern Bank, IFIC Bank, Mercantile Bank, and United Commercial Bank.
Al-Arafah Islami Bank, Eastern Bank, IFIC Bank, and Southeast Bank have invested between Tk 1.2 billion and Tk 1.97 billion from the special fund.
The banks that have utilised the entire fund of Tk 2 billion are Shahjalal Islami Bank, and National Credit and Commerce Bank, according to the securities regulator.
On the other hand, the size of investments by Bank Asia, First Security Islami Bank, Islami Bank Bangladesh, Mercantile Bank, and Union Bank is only Tk 400 million-Tk 800 million.

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