ICB's investment capacity raised - Share market analysis of dhaka stock exchange, Bangladesh

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12 July, 2018 09:26 AM Source: The Daily Star Bangladesh

The central bank will not consider the Investment Corporation of Bangladesh (ICB) as a single party borrower of banks in a bid to increase the financial institution's capacity to invest in the capital market.

The move comes in line with the six-point recommendation made by Finance Minister AMA Muhith on June 18 to give a boost to the capital market.

But the Bangladesh Bank did not implement the other five suggestions in the interest of the banking sector, a BB official told The Daily Star yesterday.

The minister sent a letter to the central bank governor asking him to redefine the banks' capital market exposure and increase the investment capability of the ICB, both longstanding demands of stakeholders.

In response to the instructions, BB Governor Fazle Kabir wrote a letter to the minister in the last week of June to inform him that the central bank will refrain from considering the ICB as a single party borrower of banks for the time being.

In September last year, the central bank asked banks to follow the single borrower exposure limit while lending to the ICB.

Any bank will be allowed to disburse loans up to a maximum of 15 percent of its paid-up capital to a single borrower in line with the Bank Company Act 1991.

But a number of banks invested huge amounts of funds in the ICB violating the act, which compelled the central bank to instruct banks to adjust their investment by June this year.

The BB official said that a haphazard situation would be created in the banking sector if the central bank implemented the five other points.

When determining the capital market exposure, banks can leave out their subsidiaries' investment in the stock market, as per Muhith's instruction to the BB governor.

The minister also asked for excluding non-listed securities and non-listed strategic investment in exposure calculation and considering the cost price rather than the market price of securities in calculations.

He also allowed banks to only include the portion of the loans given to subsidiaries that was used for share purchase as capital market exposure.

“Despite asking you twice you did not take any initiative,” Muhith said in the letter to the BB governor.

Since no initiative was taken, the market remained bearish and almost 1,000 points were knocked off in the last 5-6 months, the letter added.

AKM Zamir Uddin


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