The finance ministry has recommended that the Bangladesh Bank calculate the capital market exposure limit of banks on a cost basis.
The recommendation was made in a letter sent to the central bank on Tuesday.
At present, banks' exposure limit in the stock market is calculated on the market price instead of the cost price. As a result, if the stock market index or share price increases, the exposure limit of the bank is exceeded. So banks are forced to sell shares to stay within this limit. As a result, the index fell due to selling pressure in the bullish stock market.
Banks are major institutional investors in the bourses of Dhaka and Chattogram, their selling pressure hinders the market rallies every now and then.
Banks can invest in listed securities up to 25% of their equity on a solo basis and 50% on a consolidated basis, according to the Bank Companies Act.
Earlier in coordination meetings among regulatory bodies, the Bangladesh Securities and Exchange Commission (BSEC) requested the central bank to calculate bank exposure on the basis of cost price.
The new decision will be effective only after the Bangladesh Bank issues a circular in line with the advice of the ministry.
The stock market stakeholders said that currently many banks' investment exposure in the stock market is below the limit. However, if it is calculated in the purchase price, the exposure limit of many will increase than the current level. So even if there is some selling pressure at the beginning, it will be good for the stock market in the long run.
Earlier, on 17 July, the central bank sent a letter to the finance ministry seeking an opinion regarding a solution to banks' capital market exposure problem.
Following new Governor Abdur Rouf Talukder's joining and his courtesy meeting with BSEC Chairman Professor Shibli Rubayat-Ul-Islam recently, the Bangladesh Bank is believed to give a hand to the capital market.