Scope opens wide for banks\' capital investment in bourses

 Banks' exposure on the capital market has dropped sharply to 19 per cent against stipulated 25 per cent of respective capital, yielding a wide scope for fresh investment worth around Tk 42 billion.
Officials said the space for making fresh capital investment by banks was created after the central bank allowed the commercial banks to convert their over- investments into equities of their subsidiaries as part of adjusting overexposure in April 2016.
"Banks are now compliant with the Bank Companies Act. Besides, a room for fresh investment by banks is created," said Anis A. Khan, chairman of Association of Bankers Bangladesh (ABB) and also managing director & CEO of Mutual Trust Bank (MTB).
Asked, officials of different subsidiaries of banks said they are also exempted from paying back loans taken from parent companies and this scope facilitated their capital-related operations.
Of 56 banks, including 30 listed ones, 12 had investments above 25 per cent of their respective capital before the central bank's latest policy support granted in April, according to officials of Bangladesh Bank (BB).
Following a longstanding demand of stakeholders, the central bank paved the way for adjusting overexposure through the restructuring of exposure components and converting banks' excess funds to equities of their subsidiaries that deal in securities.
The banks' investment limit in the capital market was set at 25 per cent of total capital comprising paid-up capital, reserve, retained earnings and share premium as per the new Bank Companies Act.
Of the 12 overexposed banks, over-investments of three banks came down in line with stipulated limit following the price correction witnessed by the capital market within April.
And the remaining nine banks' surplus came down in line with stipulated limit when their over-investments were converted to equities of their respective subsidiaries like brokerage firms and merchant banks, according to BB officials.
"On average, the banks can make fresh investment of around Tk 42 billion which is equivalent to 6.0 per cent of paid-up capital, reserves, retained earnings and share premiums," said a source close to BB.
Khairul Bashar Abu Taher Mohammed, chief executive officer of MTB Capital, said the banks and their subsidiaries are presently free from the burden earlier created due to overexposure on the capital market.
"The benefit of BB's policy support will remain unrealised unless the banks inject fresh funds to capitalise on the scope created in line with stipulated investment limit," said Khairul, also secretary-general of Bangladesh Merchant Bankers Association.  
"The banks' pressure on their subsidiaries was reduced when their (banks) over-investments were adjusted through the central bank's policy support. We have been freed of paying interest and also loans taken from parent companies," said a senior official of Janata Capital and Investment, a subsidiary of the state-owned Janata Bank.
A few subsidiaries of banks are, however, yet to increase their capital through conversion of banks' overexposure as those ones have not yet got regulatory consent.
The subsidiaries which have yet to go for expansion in line with the BB policy support are BDBL Securities, BDBL Investments Services, Janata Capital and Investment and Sonali Investments.
"The central bank has already excluded the amounts of access investment from the banks' exposure limit. But we are yet to avail the BB's policy support as our proposal for raising capital remains pending with the securities' regulator," said a senior official of BDBL Securities, adding that they are working to reply some queries made by the stock-market regulator.
The Janata Capital and Investment is also working on the regulatory queries, whereas the Sonali Investment is yet to seek consent to raise capital as the company has no board since December 15, 2015, said the officials concerned.
Before the 2010-11 stock-market crash, the banks were allowed to invest 10 per cent of their respective liabilities in the capital market. Some of the banks invested more than 10 per cent of liabilities.
Later, the central bank tightened the banks' investments in the capital market alongside increasing monitoring over their investments.
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