BB to seek information from banks on investment in CPs

The central bank has decided to seek information from the commercial banks about their investment in commercial papers (CPs) and relevant other issues, sources said.
October 30 is the deadline for the banks to furnish such information.
The banks will have to provide such information as per prescribed format which was included in guidelines on CP for banks, issued by the Bangladesh Bank (BB) on September 25 last.
The Department of Offsite Supervision (DOS) of the central bank has to be updated on issuing company details, credit rating of issuer, amount of credit enhancement, rate of interest and date of maturity of the CP, according to the guidelines.
Besides, the banks will have to submit the status including redemption, not matured, defaulted and rolled-over CPs issued earlier, according to the BB officials.
The central bank has taken the latest measures to ensure proper monitoring and supervision of the CPs considering the overall market situation, they added.
"All official formalities have already been completed to issue a directive in this connection," a senior BB official told the FE Wednesday.
He said the central bank may issue the directive soon.
The BB earlier had issued the guidelines on CP under which banks are barred from giving guarantee for the money-market instruments to avert possible financial risks.
Under the guidelines, the banks should not issue the CP in any form or provide any guarantee for the short-term securities.
The banks are only allowed to invest in the CPs for enhancing credits to CP-issuers by acting as an issuing and paying agent (IPA).
IPA means a bank that delivers CPs to the investors against the proof of payment and at maturity repays the investors after receiving funds from the issuer.
But the banks are not allowed to invest in any CP issued by 'bank-related persons' as defined in the existing Banking Companies Act 1991 (Amended up to 2013).
The banks' investment in a single issue of CP shall not exceed 20 per cent of the respective issue while the debt-equity ratio of the issuer must be maximum 70:30 as per latest audited balance sheet, according to the guidelines.  
Commercial paper is defined as a secured or unsecured promissory note which has an original maturity between minimum seven days and maximum one year.  The CP is a short-term money-market security issued or sold by usually large corporate entities for funding operating expenses as well as current assets such as account receivables and inventories.
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