Central bank to take action against banks violating investment regulation
Thursday, 23 July 2009
Sheikh Shahariar Zaman
Bangladesh Bank is going to take action against the commercial banks that have violated regulation on investment in stock market.
"The central bank in its investigations has found that some banks invested heavily in the market violating regulation," said a Bangladesh Bank official.
The regulation stipulates that a bank must not invest in stocks of a listed company, more than 30 per cent of the paid-up capital of the latter.
"The investigation is going on and the errant banks will face the central bank action," he said.
The central bank on July 6 through a circular asked all commercial banks to submit reports on their share-market investment by the first week of every month to its department of offsite supervision.
It is the money of depositors and it should not be invested in risky areas, the official said.
Managing director of Mutual Trust Bank Anis A Khan said banks are diversifying their portfolios to optimise their returns.
"Interest rate margin has gone down in recent times due to lower lending rate and the banks need to find prospective areas where the return is high," he said.
It is ideal to operate merchant banking as a subsidiary, but it is very complex procedure to establish a subsidiary in the country, he added.
Chief executive officer of AIMS Bangladesh Yawer Sayeed said the central bank has taken the right decision to contain the investment of the banks.
Traditional banking and merchant banking operations are two different things and banks should concentrate more in their designated areas, he said.
The banks should run their merchant banking operations through subsidiaries as it will reduce the risk of exposure, he added.
"Share market all over the world is risky place to invest in and banks should be very careful as there is every possibility of burning their fingers," he said adding, "In a bullish market the banks can make profit, but when bearish trend comes the depositors will be ultimate losers."
The share market expert said merchant banks have limited capital and it is not possible for them to compete with the commercial banks which have investible fund of Tk 5.0 billion to Tk 10 billion, he pointed out.
"It creates uneven competition and some merchant banks have been forced to close down their operations due to this factor," he said.
The Bangladesh Bank issued the circular against the backdrop of recent surge in daily average turnover in the Dhaka Stock Exchange (DSE).
All the commercial banks will have to submit reports about the whole picture of their share-market investment to the BB.
There are 31 merchant banks operating in the country and of them nine are operated by commercial banks.
Bangladesh Bank is going to take action against the commercial banks that have violated regulation on investment in stock market.
"The central bank in its investigations has found that some banks invested heavily in the market violating regulation," said a Bangladesh Bank official.
The regulation stipulates that a bank must not invest in stocks of a listed company, more than 30 per cent of the paid-up capital of the latter.
"The investigation is going on and the errant banks will face the central bank action," he said.
The central bank on July 6 through a circular asked all commercial banks to submit reports on their share-market investment by the first week of every month to its department of offsite supervision.
It is the money of depositors and it should not be invested in risky areas, the official said.
Managing director of Mutual Trust Bank Anis A Khan said banks are diversifying their portfolios to optimise their returns.
"Interest rate margin has gone down in recent times due to lower lending rate and the banks need to find prospective areas where the return is high," he said.
It is ideal to operate merchant banking as a subsidiary, but it is very complex procedure to establish a subsidiary in the country, he added.
Chief executive officer of AIMS Bangladesh Yawer Sayeed said the central bank has taken the right decision to contain the investment of the banks.
Traditional banking and merchant banking operations are two different things and banks should concentrate more in their designated areas, he said.
The banks should run their merchant banking operations through subsidiaries as it will reduce the risk of exposure, he added.
"Share market all over the world is risky place to invest in and banks should be very careful as there is every possibility of burning their fingers," he said adding, "In a bullish market the banks can make profit, but when bearish trend comes the depositors will be ultimate losers."
The share market expert said merchant banks have limited capital and it is not possible for them to compete with the commercial banks which have investible fund of Tk 5.0 billion to Tk 10 billion, he pointed out.
"It creates uneven competition and some merchant banks have been forced to close down their operations due to this factor," he said.
The Bangladesh Bank issued the circular against the backdrop of recent surge in daily average turnover in the Dhaka Stock Exchange (DSE).
All the commercial banks will have to submit reports about the whole picture of their share-market investment to the BB.
There are 31 merchant banks operating in the country and of them nine are operated by commercial banks.